How to release equity from your house

How to remortgage to release equity from your property

You may have a lot of equity in your home if you have paid off a significant portion of your mortgage or if the value of your home has risen.

Remortgaging to unlock equity may be a way to get extra cash for home improvements, short-term debt repayment, or assist with your children’s education. If you’re thinking about it, you’ll want to weigh the advantages against the long-term costs, as well as see if there are any better-value alternatives.

N.B. This is not the same as equity release as a source of retirement income. Find out more about retirement equity release.

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What is equity?

The proportion of your home that you own outright is referred to as equity. It’s the difference between the amount you owe on your mortgage and the market value of your house.

The loan-to-value (LTV) ratio, which is the difference between the debt remaining and the property’s value, is related to equity.

Both your LTV and your equity are likely to fluctuate over time. For instance, if the house’s valuation rises to £250,000, the equity rises to £100,000, and the LTV rises to 60%. If you’ve already paid off £10,000 by that point, your LTV is 56%, and so on.

If you want to remortgage to release equity, your lender can use your LTV to negotiate prices (PLEASE REWORD TO “If you want to remortgage, you will get a lower rate of interest if you have a lower Loan To Value (LTV) or higher amount of equity in your home”). You’ll get better rates if your LTV is lower (i.e., you have more equity).

What are the reasons for remortgaging to release equity?

For a variety of factors, people tend to borrow more money against the value of their home. Remember that not all of these factors are valid and that remortgaging cannot be the best option in every case!

  • Home renovations
  • Funding higher education
  • Helping children buy a home
  • Repaying short-term debts
  • Starting a business
  • Extra income as you retire (this is a special case – learn more about equity release for retirement).

It’s important to note that remortgaging to free up equity is just another form of borrowing capital. This means you’ll be in debt for a longer period of time than you would with a short-term loan. There are other ways to borrow money from your home. These could be a Further Advance form your existing mortgage company or getting a Secured Loan from another lender (especially if you are currently tied into a fixed rate mortgage and will pay an early repayment Charge if you repay that mortgage by remortaging to another lender).

How do I remortgage to release equity in my property?

Homeowners usually remortgage when their existing mortgage rate is coming to an end or because they now have more equity and a lower LTV, enabling them to access better offers.

Another choice is to take out a secured loan on the house. If your home’s value has increased dramatically, you will want to consider this choice. Since the extra equity has come from the rise in the property’s value.

How much equity could I release from my home?

A lender may want to look into your finances and credit history, just as they did when you first got your mortgage, to determine an offer based on their lending requirements. On some lenders’ websites, you can use calculators to estimate how much you could borrow. Our Mortgage Experts can consider the whole of the market so should be able to assess every lenders lending limits to let you know how much you can potentially borrow.

Furthermore, the mortgage lender’s rate would be based on the amount of equity you already have. Your age is also a factor. When you’re approaching retirement, remortgaging your home can be more daunting because it’s expected you’ll have less money to pay off the debt. Lenders have maximum age limits so the older you are the shorter the term you have to repay the mortgage. This could make the monthly payments unaffordable, however, every lender is different so why not get in touch with us to find out more information.

All of this information will be used to decide how much extra you can borrow and how nice of an offer you’ll get.

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Get in touch with of our mortgage saving experts today.

What are the costs of remortgaging to release equity?

When remortgaging, you may be subject to an early repayment charge, which may extend even after your fixed-term period has ended. The bill is normally a percentage of the unpaid loan so that it may be thousands of pounds. You might also be charged an exit fee (which is not the same thing!). Besides, depending on the lender and the particular offer, there could be set-up costs associated with your new mortgage.

However, if you can get a slightly lower interest rate, you can offset these costs. And if the value of your home has risen substantially, even the additional costs may be justified in the end.

The most important tip to bear in mind are:

  • Take advice from a mortgage broker (or IFA) about whether remortgaging will be worth the costs.

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What are the risks of remortgaging to release equity?

It would help if you kept in mind that you are actually increasing your loan when you remortgage to release equity. If you borrow more the amount of Equity on your property decreases and your Laon To Value increases therefore this could give you a higher rate of interest to pay. Bear in mind that if home values collapse, you can find yourself in a negative equity scenario.

Your unpaid debt is greater than the total value of your house, resulting in negative equity. This is a poor position because it can make remortgaging impossible and sell your home very difficult.

Also, avoid remortgaging without first seeking professional advice. Rushing into it could result in you being turned down by multiple lenders, lowering your credit score. Please speak with one of our experts to search the whole market for you so your chances of being accepted for your remortgage are much higher because we know what we are doing.

What are the alternatives to remortgaging if you need cash?

Remortgaging may not be the easiest or the best value way for you to access extra money. Here are some alternatives to consider:

  • A personal loan – the interest rate may be higher, but you pay it off over a much shorter length of time, so you save money in the long term.
  • Joint mortgage – if you want to help your children get on the property ladder, some lenders offer joint mortgage products. These take into account both applicants’ incomes (e.g. both you and your child), so your child can potentially borrow more. Of course, if they can’t make the repayments, you will be responsible for paying them instead.

FAQs

How long does it take to release equity through remortgaging?

The application process can take anywhere from four to 12 weeks to complete, so apply well ahead of time if you need the money.  

Can I rent out my house if I have an equity release on it?

The terms of your mortgage will decide whether or not you can rent out your house. Some mortgage agreements stipulate that the property must be your primary residence for a certain period of time, so read the fine print before renting out your home.

Can I release equity to get a deposit for a buy to let?

You can use the equity in your home to put down a deposit on another house, but you’ll usually need a lot of it to do so. You’ll need a buy-to-let mortgage if you want to rent out the house. These mortgages typically require a 25% deposit, are interest-only, and have higher interest rates and fees. Before taking this measure, it’s a good idea to seek financial advice.

Can I sell my house if I have remortgaged to release equity?

If you have remortgaged to release equity and decide to move home, you can either port your mortgage (take it with you to your new home) or apply for a new mortgage. The most cost-effective option depends on your circumstances. Your remortgage deal may have early repayment Charges attached to it so please check with one of our advisers to see if you do have charges otherwise you could end up paying thousands if you sell your home at the wrong time and do not buy another property and “port” the mortgage over to your new home.

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Want to know more?

For more details, call our Mortgage Saving Experts today.

Want to know more?

Get in touch with of our mortgage saving experts today to find out how we can help.

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