How Much can You Borrow on a Home Equity Loan?

Are you keen to understand how much you can borrow on a home equity loan? You’re in the right place. Each month, over 6,900 people visit our website looking for guidance on secured loans.

In this article, we’ll explore:

•  What home equity is
•  How a home equity loan functions
•  The ups and downs of home equity loans
•  If you can borrow from your home equity
•  The current interest rate on a home equity loan

We know that home equity loans can be a bit tricky ‚Äî you might worry about how much you can borrow or if a loan is the right choice for you. We’re here to clear up any doubts and help you make an informed decision.

Let’s dive in.

Can you borrow money from your home equity?

You can borrow money against the equity in your home. You can do this in several ways, such as over-borrowing through a new second mortgage or by using a home equity loan or HELOC (we explain the latter towards the end of this guide). All of these are a type of secured loan which put your home at risk.

A home equity loan will let you borrow a lump sum based on your equity, which you then pay back (plus fixed interest) within immediate and ongoing monthly payments over a fixed term. Thus, to qualify for a home equity loan you must have some home equity available. You can get a home equity loan from banks and online lenders. 

What is the average rate for a home equity loan?

The average interest rate for home equity loans and HELOCs ranges between 2% and 10% at the time of publication and is subject to change. The best home equity loan rates will only be available to people with a good or excellent credit score who are not considered a lending risk by the individual lender. 

Some unsecured loans and credit cards may have a comparable interest rate without asking you to use home equity as security in the credit agreement. However, these are only usually accessible to people with excellent personal finances and credit history. Other unsecured personal loans can offer interest rates above 40%. 

And in either case, the amount of money you can borrow is usually dwarfed by the amount available through equity loans and HELOCs, subject to your home’s equity.

How to compare home equity loans

You can compare equity loans and HELOCs by searching for legitimate UK lenders online. Even when searching from the UK, you may come across lenders operating abroad, so make sure you’re looking at UK lenders only. Moreover, only consider lenders that are authorised and regulated by the Financial Conduct Authority. 

It’s important to know that some UK banks stay away from home equity lending and your search may be more restricted than looking for other financial products, such as a mortgage or savings account. Because HELOCs have a variable rate that changes, these are difficult to compare independently, but you can compare home equity loans more easily. 

Can you negotiate home equity loan rates?

After applying for a home equity loan or HELOC, loan lenders will usually make you an offer which should be for the full loan amount. The offer may or may not be the interest terms you were expecting. It may be lower because the lenders found you had an excellent credit score, or it may be higher due to one of many reasons. 

The lender will reject you if you did not meet their minimum credit score requirement or they believe any loan they offered would be unaffordable for you, as per responsible lending regulations. 

If approved, it is up to you to accept or reject the loan terms and conditions, including the rate of interest offered. You will not be able to negotiate the interest. You may have expected a better rate, such as one advertised on the lender’s website. But it’s important to remember that these are representative rates of 51% of applicants only, meaning up to 49% of people are offered a different rate. 

When you do receive an offer, don’t just focus on the rate of interest. You should pay attention to all the terms and conditions of the agreement and look out for closing costs!

Can I borrow 100% of the equity in my home?

You are highly unlikely to be able to borrow 100% of the available equity as this can be dangerous for the lender and the borrower. 

If they allowed you to access credit with a 100% loan to value ratio and the property decreased in value, they might not be able to recover all of the money if you have failed to repay. Moreover, the homeowner would have borrowed more than the home is worth, creating easily avoidable debt.

How much can I borrow with a home equity loan?

Most lenders allow you to borrow up to a maximum of 80-85 percent of the amount of equity you have. For example, if you have £100,000 home equity you might be able to borrow around £80,000 to £85,000 tops. This will depend on the lender and your personal circumstances; you might only be able to access a smaller percentage of your equity. 

Minimum home equity loan amount

As well as a maximum amount you can borrow, most lenders have a minimum amount you can access through these loans. As standard, lenders offer these loans with a minimum value of around £10,000. This means you’ll need more than £10,000 in equity considering you will only be able to borrow against 80-85% of it. 

If you need less than £10,000 credit then you might be forced to search for other options, such as an unsecured loan or credit card. 

How does a home equity loan work?

A home equity loan works by allowing you to borrow against the equity in your home, but the loan is secured by your equity. This means if you do not keep up with monthly payments and repay the loan balance in full as agreed, the lender can force you to sell your home to take back their money. If you choose to take out a home equity loan, you must be prepared to put the property on the line. 

By securing the loan against your home equity, the lender has greater assurances that they’ll get their money back. For this reason, they usually offer lower interest rates compared to personal loans and credit cards. You may be able to save money by using a home equity loan compared to other credit options – but not always! 

These loans require an assessment of your ability to make payments and repay in full, and the lender will check your credit score. 

How do I grow my home’s equity?

Many people want to know how they can grow their home’s equity because it improves their financial standing and could enable them to access a bigger home equity loan. There are two ways of doing this, namely:

1. Continuing to make mortgage payments or overpaying on your mortgage
2. Increasing the value of your property

To increase your home’s value, you could update rooms and renovate spaces. Or you might even want to consider a loft conversion, conservatory or an extension into a back garden. Some factors can increase and decrease your home’s value – and therefore how much equity you have – which are out of your control.