USE THE EQUITY IN YOUR HOME

February is a short month. But it can be a tough one financially. If you overspent during Christmas and the New Year, bills now coming in could have the word “overdue” (or something similar) in increasingly big type. Most home buyers have seen property values rise. So one solution to these demands – and other big items such as weddings, home improvements, educational fees, nonNHS medical costs, and dream holidays – could be to raid extra cash from your home’s new worth.

There are two main schemes – remortgages, and home equity loans (usually called second or second charge mortgages). Both give extra money from property price increases.

With remortgages, you simply start again either with a new lender or the one you have. Either way, you’ll have to convince a bank or building society it’s safe to lend to you. You’ll have to show your income – or that of you and your partner – is enough to support the additional amount you want to borrow.

You’ll also have to budget for any penalties on leaving your old mortgage.

Second mortgages, used less often, run alongside existing loans. The interest rate will probably be more expensive because second lenders can only take what’s left after paying off the first loan if you can’t pay the original borrowing. The maximum you can borrow is the gap between what you owe on a first mortgage and the current value of your property.

If your home is worth £300,000 and you have a £120,000 first mortgage, then £180,000 is available although in practice, it will be less as lenders build in a margin in case house prices fall or your home goes into disrepair.

There can be several upfront expenses to pay – appraisal fees (like a survey), origination costs (set-up fees), credit checks and legal fees. Sometimes, these are built into the loan you take or you pay for them through higher interest.

Second mortgages often run for shorter periods than standard remortgages. Some second mortgage firms offer “home equity lines of credit” – these offer more flexibility so you can borrow up to a maximum amount but repay or not use the credit when it works for you. Interest rates tend to be lower than credit cards but don’t forget up-front costs and longer loan periods.

Second mortgages can work better for the self-employed with up and down earnings. You’ll still be thought of as higher risk but you’ll only pay the extra interest on the additional amount rather than all your borrowing.