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How Much Does a Home Equity Loan Cost? Analysis & FAQs

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Scott Nelson

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MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.

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Janine
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Janine Marsh

Financial Expert

Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.

Learn more about Janine
· Jan 18th, 2024
Looking for a loan? £5,000 to £2.5 million available, compare deals below.
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Search powered by our partners at LoansWarehouse. Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable

Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable

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Cost Of Home Equity Loans

Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable

You might be asking, ‘How much does a home equity loan cost?’ This article will help you find the answers. We’ll look at key points to help you understand what you need to know about a home equity loan. These include:

  •  What a home equity loan is
  •  The true cost of a home equity loan
  •  The upsides and downsides of a home equity loan
  •  All about home equity loan fees
  •  Other options if a home equity loan is not for you

Every month, more than 6,900 people visit our website to learn about secured loans, so you’re not alone.

We know the topic can seem hard – you may worry about the costs and wonder if a home equity loan is worth it. But we’re here to help you understand how it all works and guide you through the process.

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Representative example: If you borrow £34,000 over 15 years at a rate of 8.26% variable, you will pay 180 instalments of £370.70 per month and a total amount payable of £66,726.00. This includes the net loan, interest of £28,531.00, a broker fee of £3,400 and a lender fee of £795. The overall cost for comparison is 10.8% APRC variable. Typical 10.8% APRC variable

Home equity in a nutshell

Home equity is how much value of your home that you own outright and is usually expressed as a percentage. For example, if you have a property with a market value of £300,000 and your existing mortgage is £150,000, then you have 50% equity in your property. 

To calculate home equity you simply take away your mortgage balance from the home’s value. Don’t make the mistake of using the home’s value when you bought it, as this may have changed over time. 

Your home equity can increase through monthly payments on your mortgage or by the property value. It can also decrease if your property loses value.

Home equity loan closing costs

A home equity loan closing cost is a fee payable by the borrower at the end of the loan. These types of fees are also common when you use a HELOC or even a mortgage. They generally cover administration processes to record that the loan has ended, including adding it to your credit report. 

It’s important to be aware of these costs because it may wipe out potential savings you make on lower interest. You’ll need to include these costs in calculations when you compare home equity loans and other credit options. 

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£

Lender

APRC

Monthly payment

Total amount repayable

United Trust Bank Ltd

6.34%

£219.34

£26,320.83

Pepper Money

6.86%

£220.24

£26,429.17

Together

7.99%

£222.20

£26,664.58

Selina

8.45%

£223.00

£26,760.42

Equifinance

9.95%

£225.61

£27,072.92

Evolution

10.2%

£226.04

£27,125.00

Spring

10.5%

£226.56

£27,187.50

Loan Logics

11.2%

£227.78

£27,333.33

How much is closing costs on a home equity loan?

The closing costs on a home equity loan and HELOC can vary between different lenders. It has been reported that the average fee you should expect to pay at the end of the loan will be equivalent to 2-5% of the total amount of money the lender let you borrow. 

So, if you took out a loan for £40,000 then you can expect a closing fee of between £800 to £4,000. Some lenders may charge less than this. 

Do no closing cost home equity loans exist?

Yes, it is possible to find lenders offering a home equity loan without the need to pay any additional costs and fees. However, these lenders have usually factored the costs that would normally be payable into a higher fixed rate of interest, so you end up paying around the same anyway. 

This may not always be the case and you might be able to find a great deal by taking the time to look for loans – and having an excellent credit score. 

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Other home equity loan fees

When a lender decides to offer you an equity loan, they must know the accurate valuation of your property. To get this valuation they complete an estate agent appraisal. The lender may or may not cover the cost of this appraisal or they may pay it but factor in this cost to other costs. 

Is there a minimum amount for a home equity loan?

Lender regulations have not set a minimum loan amount for home equity loans. However, some lenders may have themselves imposed a minimum amount you can borrow using this method. Some will only allow you to take out these loans for a minimum of £10,000. If you need less than this then a home equity loan may not be the most advantageous solution. 

And remember, if there is a minimum amount then your home’s equity will need to be more than this to suffice a lender loan to value ratio up to 80-85%. For example, a £10,000 loan will require you to have at least £11,770 in equity – but probably more. 

Are home equity loans worth it?

Home equity loans allow applicable homeowners to secure large credit with a lower interest rate than they’re likely to find elsewhere (pending approval and a good credit score). They can be worth it for people needing large credit for specific purposes, such as home renovations and big-ticket purchases. 

However, it is essential that anyone considering these loans is aware of the associated costs and fees of a home equity loan, not limited to the closing costs. These additional expenses may make a home equity loan unworthwhile compared to other loans, especially those that do not put your property on the line. 

There is no straight yes or no answer and if a home equity loan is worth it will be determined entirely by personal circumstances and alternative options. 

Home equity line of credit (HELOC) repayments

A HELOC also allows you to access a loan based on home equity, with some key differences:

  1. Instead of a lump sum, you receive a line of credit that you can access a bit like a credit card. You are given a loan term to withdraw the money called a draw period. 
  2. You usually only start making payments to clear the outstanding balance/debt once the draw period ends, rather than straight away.
  3. The amount you borrow is subject to variable interest rates rather than fixed interest payments. 

Because a HELOC will let you borrow over time with a credit line and uses a variable rate, there is no way of saying if the interest payable will be less or more than the interest payments on a home equity loan. However, they will be comparable in many cases and likely to be lower than the loan equivalent and unsecured credit options. 

A HELOC may also include a fee if you choose to close the credit line earlier than agreed. 

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The benefits of a home equity loan

Equity loans are a solid option that affords many benefits. The main benefits of using a home equity loan are:

  1. Fixed interest rate

These loans usually have a fixed rate of interest rather than variable interest, meaning you will know exactly how much your monthly payments will be (principal and interest) every month. This is seen as a benefit by some people who prefer to know exactly what to budget for. 

  1. Lower interest rates

Home equity loan rates are typically lower than other loans, especially unsecured personal loans. You can avoid high-interest debt with an equity loan because you are using the equity in your home as collateral. The lender can recover the amount you owe easier and can therefore offer lower interest rates on average. 

  1. Access larger credit

A home equity loan can enable you to access much bigger credit than what personal loans and credit cards can offer. Depending on your home value and how much equity you have, you may be able to get a loan worth hundreds of thousands of pounds.

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The authors
Scott Nelson Profile Picture
Author
MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.
Janine Marsh Profile Picture
Financial Expert
Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.