Borrowing money against a house/mortgage

[Z064life]

Hi,

This is hypothetical but something I wonder.

When money is borrowed against the equity in a home, how does this work?

I would assume that if you had 100k equity in a home, and use 50k before selling for something, then when you sell, the bank takes 50k of that equity (i.e. calling in the loan if you like).

Is this correct? Are you bound to sell the house within a certain timeframe? What if you never sell the house?


Thanks!

[jeff m2]

Home equity line of credit.
Open a credit line secured by your equity.
You don't have to draw on it, if you do it acts just like any other loan you repay P & I each Month.

If you sell the house on which it is secured the outstanding bal will be deducted from the proceeds.

They do prefer to be first.
So much easier to get with no mortgage.

[98elise]

You could take out an offset mortgage. I did that before buying my first BTL. I pay back into the offset, however that cash is always their for me to borrow.

[Ozzie Osmond]

Z064life said:

Are you bound to sell the house within a certain timeframe? What if you never sell the house?

It makes no difference whether you are borrowing 1% of the value of the house or 100% of the value of the house. In fact, you might remember that not many years ago it was fashionable for new buyers to draw 110% mortgages!

The mortgage is a "charge" secured against the house and that charge is registered at the Land Registry on the documents which show your ownership. You still own the house but you can't pass ownership (sell it) to anyone else unless the bank agrees, and they will only agree if their loan is repaid.

If you default on the mortgage either by not making the monthly payments or by not repaying it at the end of its term (whether an interest only mortgage or any other mortgage with a fixed term, usually 25 years) the bank can,
1. Sue you for the money you owe, and/or
2. Apply to court to have the house sold, which means their loan gets repaid from the proceeds of sale. This is what usually happens if you default. Ultimately you can be evicted by the bank and the house will be sold by the bank.
If sale of the house doesn't produce enough money to repay the loan you STILL owe the bank the difference and they can sue you if you don't pay up.

Someone has already mentioned offset mortgages, which are one variety of a type of mortgage/charge where the starting loan isn't simply paid off over time but can be increased by making further drawdowns. None of this changes the basic position I've outlined above.