Home Equity Loans

UK Home equity is the amount of value built up in a property. The longer a person pays into a mortgage and as long as the property values associated with the property go up, the equity in a home will increase. A home equity loan borrows money against that increased value, using the property as security against the loan. A home equity loan can be borrowed against a home that is owned outright or a home that has an outstanding mortgage. Once the home is paid for, the property belongs to the mortgager, the buyer. Until then, however, the buyer builds equity in the home by paying against the mortgage. The difference between what the outstanding balance on the mortgage is and the home's worth in the current market is the equity.

A home equity loan borrows against this equity. The loan could be used for a number of purposes. It could be used for repairs or renovations to the home. It could be used to pay off outstanding debts or for debt consolidation or it could be simply used for a holiday. Since the loan is secured by the property itself, there are fewer restrictions on how the money can be used.

Because of the way housing markets work, homeowners often have a sizable amount of equity in their homes which hey might borrow against. The amount available for lenders to offer is based upon the borrower's personal circumstances like their ability to repay the loan within the term or whether they have adverse credit.

Home equity loans are generally easier to get than unsecured loans because the lender has the added security that the property affords. If the borrower is unable to repay the loan within the term agreed upon, the lender has the property with which to reclaim the loan amount that has been defaulted on. In general, however, lenders would much rather retrieve the money lent rather than repossess the property.

Interest rates on home equity loans are usually reasonable, though they are often a bit higher than first mortgages are. Since the first mortgage provider has the lien on the property, any loans on the equity would be second in line if the borrower defaulted and therefore take more risk than the first provider. Second providers charge a risk premium in the form of additional interest.

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