Home equity loans may sound complicated, but they are based on a simple idea: there is a difference between the value of your home and the outstanding amount of your mortgage. This difference is its capital and home equity loans can be an amount based on that figure to borrow.

Home equity loans are not as complicated as you might think. If you had a mortgage for a while, there is a good chance that there is a big difference between the value of your home and the amount you still owe the mortgage payments, and that difference is known as equity. So for example if your home is worth £ 100,000 and you still have £ 50,000 outstanding on your mortgage, the equity in your house is £ 50,000.

Home equity loans are often aimed at older consumers, with companies such as Northern Rock and Scottish Widows offering such loans to 60 age group. These arrangements are not always associated with repayments, instead, the bank gets its money back by selling your home when you leave (either by moving elsewhere, to go into long term care, or because of death).

The idea is that home equity loans to help retirees who have expensive homes, but limited income by freeing up the value of their property, without forcing them to sell their home.

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