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What is home equity?

Home equity is the value of your property, less the amount you owe on your mortgage.

It can go up over time, as you pay off your mortgage, and if your property rises in value. 

Knowing how much equity you have in your home can be useful. If you need to, you may be able to borrow against it, in the form of a home loan or equity release.

How to calculate your home equity

To calculate the amount of equity you have in your home: 

  1. Add the amount you owe on your mortgage together with any secured loans.

  2. Then subtract that amount from the current value of your property.

Example: 

Property value: £400,000
Outstanding mortgage balance: £200,000
Outstanding secured loan balance: £10,000
So: £400,000 minus £210,000 (£200,000 + £10,000) = £190,000
£190,000 is the equity you have in your property.

To find out how much your property is worth, you can:

  • ask local estate agents to provide a valuation of your property (these are often free)

  • look at what similar properties in your area have sold for

What is negative equity?

Negative equity is when the total amount you owe on a mortgage and/or other loans secured on your home is higher than the value of the property. For example, if property prices fall – you could owe more than your home is worth. This can make it difficult if you decide to sell, or remortgage.

How can you use home equity?

You can use your home equity to help you climb the property ladder to your next home, or free up money by downsizing – if the property you’re buying is cheaper than the one you’re selling. Other options include: 

Home loans

A home loan is a type of secured loan. It enables you to borrow money against the equity in your home. You may decide to do this to fund home improvements, for example.  

A home loan could be an additional element to your existing mortgage (if you have one) or be your only form of secured borrowing. 

If you have an existing mortgage, and take out a home loan, your monthly payments may increase. Alternatively, you may be able to extend the length of your mortgage term, to try and make your monthly payments more manageable. However, extending your mortgage term could mean you pay more interest overall, even if the new interest rate is lower. 

Keep in mind – with any form of borrowing, you need to be able to afford the repayments. The value of your property can also fall, which can leave you in negative equity. 

Equity release

If you’re over the age of 55, you may be able to release equity (cash) tied up in your home. This money can be released as a lump sum and/or smaller, regular payments. You may decide to do this to supplement your income in retirement, for example.  

The money you borrow against your home is then paid back to the equity release provider when you die, or go into long-term care, using the proceeds from the sale of your home. 

Please note – HSBC doesn’t provide equity release products. 

Releasing equity requires careful thought. As the sale of your home is used to pay back the amount borrowed – this reduces the value of your estate, and how much you leave your loved ones when you die. It can also affect any benefits you’re entitled to, now or in the future. 

Equity release arrangements can be complex. You need to make sure you completely understand all the terms and conditions before you enter into one, and seek advice from a specialist in this area. 

Think carefully before securing other debts against your home.

Your property may be repossessed if you don’t keep up repayments on your mortgage.