Accessing your home equity: how does it work?
Equity is the difference between your home's current value and the mortgage debt secured on it. That amount is not freely available in a bank account. If you want to access it through a mortgage, you are borrowing extra money and affordability and eligibility must be reassessed.
Responsible for the content: Ricardo Roso. Updated on .
Equity is not the same as additional borrowing capacity
Has your home increased in value or have you repaid part of your mortgage? You may have equity. For example, with a property value of €400,000 and a mortgage debt of €250,000, the equity is €150,000. That does not mean you can borrow an extra €150,000. The lender also considers your income, existing commitments and the loan conditions.
A future change in income, such as retirement, may affect the assessment. Even with substantial equity, a requested increase may be too high for your monthly budget. An online estimate of the property value is also not automatically evidence that a finance provider will accept.
Start with the purpose of the money
Do you want to renovate, improve energy efficiency, help someone financially or increase your spending capacity? The purpose helps determine which options and tax questions arise. Prepare a budget and consider which expenses are really necessary. Compare additional borrowing with saving, carrying out a smaller plan or using another available solution.
A long mortgage term may make a monthly payment look manageable, while you repay the expense with interest over many years. Compare the total costs and term with the period in which you will use the purchase or improvement. Being able to borrow more is not, in itself, a reason to take the full amount.
Which mortgage options are there?
Depending on your existing arrangements, you could explore an increase with your current lender, an additional mortgage or remortgaging. There may be room within the existing registered mortgage amount. This does not automatically avoid a new financial assessment or other costs. Remortgaging may also involve an early repayment charge.
There are also products and arrangements to access property wealth with different terms for interest, debt or ownership. They are not interchangeable. The AFM warns that some alternative arrangements offer less consumer protection. Ask for an explanation of which rights you retain, what you pay and what happens on sale or death. Availability and conditions vary by provider and situation.
Repayment arrangements matter when taking an additional loan. Read our explanation of an annuity mortgage.
Also see how a linear mortgage reduces the debt.
Is interest on borrowing against equity tax-deductible?
It is not automatically deductible just because your home is the security. Mortgage interest deductibility depends on how the money is used and the tax conditions. If you use the additional loan to improve or maintain your own home, the interest may be deductible subject to conditions. A repayment requirement generally applies to new owner-occupied home debt; existing rights and exceptions require a separate assessment.
If you use the money for a car, a gift or other personal spending, for example, the interest on that part is not deductible owner-occupied home interest. Keep evidence of renovation expenditure. If you use the loan for different purposes, establish how each part is treated for tax.
Review costs, risks and your future housing plans
An increase may involve advice, valuation and notarial fees. The costs depend on the route and your existing mortgage. Also ask what happens after the fixed-rate period ends and if your income falls. For products that add interest to the balance, discuss how quickly the debt can grow.
A higher debt leaves less money after a sale and may make a later move harder. If the property value falls, the remaining equity may shrink or disappear. Include your housing plans, retirement and a reserve for unexpected expenses. Borrowing against your own home to buy a rental property also requires an assessment of both properties and their costs.
Are you considering investing in a rental property? Read more about a buy-to-let mortgage and the separate rental property assessment.
Discussing your options with RFD
Set out your purpose, desired amount, current mortgage and expected income. From our office in Sittard, RFD discusses your options and the effects on your monthly payments. The first introductory meeting is free. Before any follow-up process, agree the work, documents and costs needed.
The maximum mortgage calculator on this website does not calculate a specific withdrawal from your existing equity. An increase must take account of your current loan, conditions and the new use of the money. This requires a personal calculation.
Would you like to discuss your situation? Book an appointment with RFD.
Services and comparison documents
The service comparison document describes our financial services and the stated costs. We agree the services and costs for your enquiry with you personally.
Frequently asked questions
Can I access all the equity in my home?
Equity alone cannot determine that. Your income, commitments, property value, existing loan and acceptance conditions together determine what additional finance is possible.
Is accessing equity the same as using savings?
No. Accessing it through a mortgage increases your debt. That involves interest, any repayments and possibly one-off costs. The amount left from a later sale after repaying the debt may also be lower.
Is interest on borrowing against equity always deductible?
No. The use of the money and tax conditions determine this. Deductibility may be possible, subject to conditions, for improvements to your own home. Interest on an additional loan for other personal spending is not deductible owner-occupied home interest.
This is general information, not personal mortgage advice or a finance offer. Your options and the tax implications depend on your circumstances and the provider's terms. Read the disclaimer.
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Sources for this guide
General information from RFD. Sources consulted on . Rules and terms may change.
What would you like to discuss?
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