Home finance rates updated. Now from 5.99%. Apply now

- Home finance
- Why StrideUp?
- Buy-to-let
- Bridging finance

Home finance
Explore home finance Halal mortgage First-time buyer Refinance your property
You may be interested in
How StrideUp home finance works How much could I finance? Home finance rates Eligibility Finance calculator Rates calculator Existing StrideUp homeowner?

### Discover halal home finance with StrideUp.

Learn more
Shariah-compliant
Fast and simple
Immediate access
Transparent
Guided support
Trusted by experts
FCA regulated
Finance that works
Buy-to-let
Explore buy-to-let
You may be interested in
Rates calculator Eligibility Existing StrideUp landlord?

### Invest in property the halal way.

Learn more

### Be the first to know about bridging finance.

Register your interest to get exclusive updates on our bridging finance product.

I’ve read and agree to the Privacy Policy.

Suggested
Home finance Halal mortgage Buy to let Refinancing How home finance works

### No results found

Can’t find what you’re looking for?
Visit help
Looking for intermediaries?
For intermediaries
Are you a current StrideUp homeowner?
Current customers
Pages
0
Articles
0
Products
0
FAQs
9
Calculators
0
Tools
0
Log in
Get started
Knowledge

# Equity loans and home equity loans: what’s the difference?

Equity loans can cause a few headaches because of confusion in how they work.

5
8
2
Team StrideUp
Published: 14 May, 2021
Published: 14 May, 2021

You might be looking for an ‘equity loan’, where you’d be making additional borrowing as a top-up to the amount you’re able to borrow through your main mortgage provider. Or, you might be interested in a ‘home equity loan’, which is a form of credit, using your equity as collateral. Cut through the jargon and get to grips with how these different equity loans work, starting with a clear definition and example.

##### Table of contents

- What we heard at MTF 2025
- The data confirms it: Our community is underserved
- StrideUp’s model resonated deeply
- More than a moment – a movement
- The data confirms it: Our community is underserved
- So, what’s next?

## What is an equity loan?

### Equity loans: a quick definition

An equity loan is a term used to describe additional borrowing, which acts as a top-up to the amount you’re able to borrow from your bank, lender or main mortgage provider. The government’s Help to Buy loan is a good example of an equity loan (and we’ve covered this in more detail below), designed to help buyers who wouldn’t otherwise be able to fund their purchase. Equity loans are also widely used by building companies, to encourage house sales.

Do you have a Help to Buy equity loan? Learn about valuations.

### Equity loans: an example

### £220,000

Property price

### 20%

Equity loan arrangement on this property would work out as follows:

### £11,000 (5%)

Your deposit +

### £165,000 (75%)

Bank/lender mortgage +

### £44,000 (20%)

Equity loan =

### Total sale: £220,000

Deposit, mortgage and equity loan combined

When talking of equity loans, it is normally assumed these are loans that share in the equity of the property (as opposed to second charge mortgages which do not). What this means is that the amount you have to repay increases or decreases depending on the value of the property – we’ll look at an example in the Help to Buy section below.

## What is a home equity loan?

### Home equity loans: a quick definition

A home equity loan (also known as a ‘homeowner loan’) is essentially a form of credit. It allows you to borrow money, using the equity from your home (the portion you yourself have paid for) as collateral (security which you’ll lose, if you default on the loan terms or repayment). How much you can get as a home equity loan depends on the value of the property, and this will be decided by the lender.

Home equity loans are often used to fund big financial outgoings, such as a renovation job, repair work or even medical treatment. They can be useful credit lines for people with no mortgage left to pay (or very little), who have an excellent credit rating, and need to raise cash without selling their home.

### Home equity loans: an example

### £300,000

The appraised value of your home

### £70,000

Your outstanding mortgage balance

### £230,000

In this case, the value of your home minus your outstanding mortgage balance is £230,000, giving you a potential loan value of £230,000; you don’t need to take the full amount as a loan of course, it depends on what you’re looking to finance

Remember, this loan would be taken using your £230,000 as collateral. If your loan repayments defaulted, your money would be at risk. You need to think very carefully before using your home to secure debts, as ultimately, it could result in repossession.

## What is the Help to Buy: Equity Loan?

Help to buy is a government initiative, set up to help people move home with a low deposit (down to 5%). There are actually two schemes – Help to Buy: Shared Ownership and Help to Buy: Equity Loan. We’ll focus for now on the Help to Buy: Equity Loan, which works very much like to equity loans we’ve covered above.

## How does it work?

The Help to Buy: Equity Loan is designed to help people buy their own home when working with a low deposit. With this loan, the government will lend you up to 20% (40% in London) of the cost of the home you want to buy. It will need to be a new-build, priced up to £600,000 and you’ll only need a 5% cash deposit and 75% mortgage. The government will essentially make up the rest, as a loan.

This equity loan is open to first time buyers or people looking to move home, but this must be the only property you own.

Fees (and paying off the Help to Buy: Equity Loan) You won’t be charged fees on this loan for the first five years that you own your home. After that, the interest rate starts at 1.75% and increases in line with inflation plus 1%.

You’ll have to repay the loan when you sell the property (or after 25 years). The amount you have to repay depends on the value of the property. For example, if the value of the property we considered above increases from £220,000 to £250,000, your 20% equity loan will need to be paid back at £50,000 instead of the £44,000 that you borrowed. For more information on the fees involved and repayment procedure, take a look through the government’s Help to Buy Buyers’ Guide.

## London Help to Buy

Average home prices in London tend to be higher, so Help to Buy shifts a bit if you’re looking to buy in the capital. The upper limit that you can borrow is 40%.

Mortgage refinancing (an alternative to home equity loans) Any loan involving your property as collateral needs to be thought through very carefully. Knowing all your options is crucial, and in the case of home equity loans, mortgage refinancing might be an alternative worth exploring.

With mortgage refinancing, usually, you’d be looking to increase your mortgage, in order to take out some (or all) of the extra cash. Lenders will approach this differently, and depending on your circumstances, so if it sounds interesting, check-in with yours and ask for your options.

Get started now Home Purchase Plans

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE PAYMENTS ON YOUR PURCHASE PLAN.

## Stay in the loop.

Join our newsletter for exclusive updates and insights you won’t want to miss.
Subscribe

5
8
2
About the author
Team StrideUp

Writing about money with meaning, faith with function, and homes built on values.

## Related reads

Knowledge

##### Islamic Mortgage UK guide: What to check before choosing a Home Purchase Plan

Team StrideUp
256
364
74
Knowledge

##### What is an Ijarah Agreement?

Team StrideUp
58
5
3
Knowledge

##### First-time buyers and halal home finance explained

Farah Akhtar Marketing Assistant
102
94
89

## Your StrideUp home is waiting for you.

Take your first step

## Stay in the loop.

I’ve read and agree to the Privacy Policy.

## This call is for investment finance only

Investment calls are for Buy to Let properties only.

Book an investment call

If you’re looking to purchase or refinance your own home, explore home finance instead.

Explore home finance