Equity Release Scheme

This is a type of loan for homeowners who wish to borrow a substantial amount for any purpose approved by the lender for example home improvements, house extensions, debt consolidation.

The house will normally have been bought at a lower cost than the current value so that the amount of equity in the property has increased. The loan is secured against the value of the home and repaid as if it were a mortgage loan to purchase the property.

A loan provided by the original lender is known as a further advance. A loan provided by another lender is known as a second mortgage. Tax relief is not given on the advance. It can however still be an economic way of raising money. Relatively low payments can be made as the loan is spread over a long period compared with an ordinary type of personal loan. The interest rate is also likely to be lower than would be charged on an unsecured loan.

The repayment method for the additional loan can be either capital repayment or interest only, but need not be the same as that used for the original loan.