How to unlock your home equity

House prices have risen significantly in recent years and many homeowners have paid off part of their mortgage. As a result, the equity in many homes has increased sharply. In this article, we’ll go into what home equity is exactly and how you can unlock it.

Home equity is the difference between your property’s current value and the amount you owe on a mortgage. For example, if your property is worth €650,000 and you still owe €250,000 on your mortgage, your equity is €400,000. Home equity is built up both through an increase in the property’s value and through mortgage repayments. You can find an estimate of your property’s value using sources such as the WOZ value desk (‘WOZ value’ stands for the value of your home as established by your local authority).

By unlocking your home equity, you can sometimes fulfil a long-cherished wish, such as taking a long trip, buying a second home or helping your children purchase their own home. You can also renovate your home, improve its comfort and make it more energy-efficient. In addition, you can use your home equity to supplement your monthly income. Below, we’ll explain a number of options.

The most obvious way to unlock the equity is to sell your home. If you move to a rented property, you’ll pay off the remaining mortgage using the proceeds from the sale. You can then spend the equity freely. This is particularly attractive if you don’t want any new financial obligations.

Buying another property?

In that case, you need to take into account the so-called additional loan scheme. This scheme encourages you to use the equity from your old home for the purchase of a new home. If you don’t, you may not be entitled to mortgage interest relief. This means you’re likely to receive less tax relief, which could lead to an increase in your monthly outgoings. This would give rise to a debt in box 3 of your tax return.

You can pay for a renovation or sustainability improvements using the equity in your home. You can do that by taking out an additional mortgage or by, for example, re-borrowing an amount you already repaid. You can claim mortgage interest relief on this, provided you repay the additional mortgage within 30 years using either the annuity or straight-line repayment method. If you make your home more sustainable, you’ll not only improve your living comfort, but you’ll also reduce your energy bills. You’ll often qualify for a larger loan on favourable terms to fund energy-efficiency measures. Another benefit of making your home more sustainable is that it increases its value.

You can also use the equity to give your children a sum of money or lend it to them so that they can, for example, buy their own home. Find out more about buying a house with help from family.

You can supplement your income using the equity in your home. This may be an interesting option for pensioners looking for some extra financial leeway. By unlocking some of the equity in your home, you can improve your standard of living without having to sell your house. This is also a way to pay for (future) care costs.

Unlocking equity with the Home Equity Mortgage

If you’re aged 62 or over, you can take out a Home Equity Mortgage. Here’s how it works:

• You decide in advance how much money you need, for example for a one-off expense or to supplement your income.
• The interest on this mortgage will be added to your outstanding balance, meaning that your monthly payments remain the same.
• It’s only after your death that your heirs will have to repay the total debt.

Unlocking your home equity can be a good solution if you want extra financial flexibility without increasing your monthly outgoings. The downside is that your heirs will ultimately have to pay off the debt, which may reduce the inheritance. This situation also leads to a debt in box 3 of your tax return, and the interest on this debt is not tax-deductible.

Read our other articles about home and mortgage

The equity in your home offers many opportunities, whether you want to move house, improve your current home or simply create extra financial breathing room. It’s important to make a well-considered choice and take into account both the pros and cons, while always ensuring that your total spending on your home remains affordable.

If you have any questions or would like a no-obligation consultation, schedule a Mortgage 360° meeting with one of our experts. Even if you have a mortgage with another bank, we can still offer you tailored advice. This will enable you to make the best decision for your financial future and make the most of your home’s equity.