Making the most of your equity

Over recent years property values in the UK have rocketed, and this has left many homeowners with high levels of equity in their homes. The equity in your home is the amount left after any outstanding mortgage or secured loan balance has been deducted from the market value of the property.

Many people have taken advantage of the rising equity levels in their homes by borrowing against this equity, and this has enabled them to enjoy affordable borrowing for a wide range of purposes.

Secured loans, which are loans available to homeowners with some level of equity in their homes, have become increasingly popular over recent years, with more and more people appreciating the increased financial leverage that their equity levels have provided.

There are many lenders that offer secured finance to those with their own homes, and the equity levels required can vary from one lender to another. Some secured lenders will allow borrowers to borrow up to a certain percentage of their available equity.

There are others that will allow you to borrow the full amount of your equity. Some will even let you borrow over and above the amount of your equity. The lending criteria can vary from one lender to another, so you should make sure that you compare the different loans available from a number of lenders to find the best deal for your needs.

Whatever you need to raise finance for a low rate secured loan will enable you to make the most of your equity by getting low rate finance that offers affordability.

You will be able to choose from a wide range of lenders, although you should bear in mind that lending conditions have become tighter recently due to the credit crunch and therefore you may find that some lenders are tightening their lending criteria.

For many, however, this is the most effective and affordable way of borrowing, and many people stand a far better chance of getting a loan that is secured against the home than getting an unsecured loan.

For example, someone with bad credit may find it practically impossible to get an unsecured loan because many unsecured lenders will not offer finance to those with bad credit.

However, many secured lenders will consider bad credit applicants because the fact that the loan is secured provides extra security of the lender.

If you want to use your equity in order to take out a secured loan there are a number of things that you will need to do. First of all you need to arrange a valuation on your home. You do not need to go to any particular expense to do this, as you can ask an estate agent to come out and do the valuation.

However, you should make sure that you get valuations from at least two or three agents so that you get an idea of whether the valuation they are providing is realistic. Also compare the valuation figure with the value of similar properties that are for sale in the area.

Once you have your valuation you should contact your mortgage lender and find out what you owe on the mortgage. Often the lender will have to provide this in writing, so you may have to wait a few days. Also, if you already have any loans secured on the property contact those lenders as well in order to get an up to date balance.

Once you know exactly how much you owe on the house deduct that figure from the value of the property, and the figure that you are left with is your equity. You can then determine how much equity you have to borrow against and this will speed things up when you start looking for a suitable secured loan.

The second thing that you need to do with respect to finding a suitable loan is to start comparing different secured loans from a variety of lenders.

You need to compare the interest rates that are available, as well as repayment terms, eligibility requirements, etc. You will then be able to determine which lenders are best suited to your needs and which loans you are eligible to apply for.

Of course, do make sure that you do your budgeting before you make your application for a loan, as you need to know what sort of monthly repayment you can afford to make so that you know how much you can realistically afford to borrow.

Don’t overstretch the amount that you can realistically afford, as otherwise you may find that you cannot keep up with repayments if there is the slightest change in your financial circumstances, and this could lead to the loss of your home.