Ever wonder why lenders keep asking about your "equity" when you apply for a loan? In plain terms, home equity is the part of your property you actually own. It’s the market value of your house minus the amount still owed on your mortgage. If your home is worth £300,000 and you owe £180,000, you’ve got £120,000 in equity. Simple, right?
Why does this matter? Equity is the financial lever you can pull to lower interest rates, fund a renovation, or consolidate debt. It’s also a key factor when you consider a remortgage or any loan that uses your home as security. Knowing exactly how much equity you have puts you in control of those decisions.
First step: find your current market value. You can get an online estimate, ask a local estate agent, or request a professional appraisal. Next, check your mortgage statement for the outstanding balance. Subtract that balance from the market value. The result is your equity.
Many people also look at the loan‑to‑value ratio (LTV). LTV is the percentage of the property’s value that’s still financed. It’s calculated by dividing the mortgage balance by the market value, then multiplying by 100. A lower LTV (under 70% is common) usually means better loan terms because lenders see less risk.
Want a quick example? Say your house is valued at £250,000 and you owe £150,000. Your equity is £100,000. Your LTV is (£150,000 ÷ £250,000) × 100 = 60%. With a 60% LTV, you’re in a good spot to negotiate a lower rate on a remortgage.
Now that you know the numbers, think about how to use that equity. Here are three practical options:
Before you act, run the numbers. Compare the new loan’s interest, fees, and repayment term with what you’re paying now. A simple spreadsheet can show whether you’ll actually save money or just shift debt around.
Don’t forget the risks. Borrowing against your home means you could lose the property if you miss payments. Make sure you have a stable income and a realistic budget for the new repayments.
Lastly, keep an eye on market trends. Property values can rise or fall, and that directly affects your equity. If you’re planning a major financial move, a little research on local market conditions can protect you from surprises.
Home equity is a powerful tool when you understand it. By calculating your equity accurately, checking your LTV, and weighing the pros and cons of each option, you can make smarter decisions that fit your financial goals. Whether you’re looking to lower your mortgage rate, fund a home project, or tidy up debt, your equity is the starting point. Use it wisely, and you’ll see real benefits on your balance sheet and in everyday life.
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