How To Remortgage Your House And Release Equity

07-July-2022

07-July-2022 9:51

in Private clients

by Sam Hodgson

How To Remortgage Your House And Release Equity

You might consider remortgaging your house to release equity if you want to raise extra cash. The funds could be helpful for home improvements, putting a deposit down on investment property, paying off other debts or helping your children with their education.

Refinancing to release equity can be an excellent choice, but you should weigh the pros and cons against the long-term costs of doing so and see if there are any better alternatives.

In this guide:

What is the meaning of home equity?
Reasons you might remortgage your home to release equity
Releasing equity for retirement
How to remortgage to release equity
How much equity could I release from my house?
How long does it take to remortgage and release equity?
Potential drawbacks of remortgaging to release equity
What are the alternatives to remortgaging to release equity?
Why remortgage through a mortgage broker?

Equity Release Case Study

Watch our video on remortgaging to release equity to buy another property.

What is the meaning of home equity?

Home equity is the percentage of your house that you own outright. You take the current market value of your home minus the outstanding balance you still owe on your mortgage, which is your total equity.

You may have built up equity in your home if you’ve paid off a large chunk of your mortgage or if the value of your house has gone up.

This is where Loan To Value (LTV) comes in. LTV is the difference between the amount you want to borrow and the value of your property and is the figure lenders will refer to when deciding what rates to offer you.

The more equity you have in your home, the better the rates you can expect to pay when you remortgage to release equity.

Reasons you might remortgage your home to release equity

If you remortgage to release equity, you will gain access to cash otherwise tied up in your property. This allows you to raise funds for various purposes, as long as the lender approves them. Some common uses of released equity include:

Making upgrades or renovating your property
Helping children to buy their first home or pay for higher education
Funding an important event such as a family wedding
Paying for private health care
Paying off short-term debts
Having extra money for retirement
Starting a business
Buy a second home as an investment

You can remortgage to release equity at any stage of your life. However, the lender will want to be sure that you are using your released equity for a sensible investment or purchase and that you will be able to afford the repayments.

Remortgaging to release equity, UK, Clifton Private Finance

Releasing equity in retirement

A ‘lifetime mortgage’ is one of the most popular methods of releasing equity from your home among older people over 55 or in retirement. With a lifetime mortgage, you borrow a lump sum which is then repaid from the sale of your home, either when you die or move into long-term care.

Typically you can borrow up to 50 per cent of your property’s total value, and the older you are, the more you can release.

A lifetime mortgage can be an effective way to release money for many purposes, including:

Supplementing your income during retirement
Making home or garden improvements
Pay for holidays or medical bills
Repay unsecured debt

You can usually choose to take the loan as a lump sum or opt for a drawdown facility. There are also options to pay interest monthly (so it doesn’t compound) or roll up the interest to be paid off when you die or your house is sold.

Speak to one of our expert mortgage advisors today to discuss whether a lifetime mortgage might work for you.

How to remortgage to release equity

The first step to remortgaging to release equity is calculating how much equity you own. You’ll need your property’s current market value, which you can find out online, or get a professional property valuation conducted by an estate agent.

Once you have completed this step, you can calculate your loan-to-value (LTV). This is the amount you own compared to the amount still outstanding on your mortgage.

Suppose your home’s value has risen significantly (lowering the LTV and increasing your equity). In that case, you can borrow more money without increasing your monthly repayments – because the extra equity has come from the increase in your property’s value.

Taking the previous example, if your LTV has dropped from 85% to 75%, you can either get a lower repayment rate or keep the LTV at 85% and borrow the extra money.

Once you know your LTV, you can speak to your current lender to discuss options for remortgaging to release equity. But it is wise to shop around as your current lender may not have the best deal available on the market.

This is where you may benefit from speaking to a mortgage broker who has expert knowledge and access to the best remortgage deals that aren’t available on the high street.

How much equity could I release from my house?

Every lender has different criteria they’ll want you to meet when considering a remortgage to release equity applicant.

They will want to assess your affordability by checking your finances and credit profile.
They will take into consideration the equity you currently own.
They will want to know what you want the extra cash for and whether this is appropriate.
Your age could be a factor- remortgages can be tricky if you’re over 50 unless you opt for a lifetime mortgage.

How much you can borrow and what deal you are offered will depend on your circumstances and the lender. This is where it may be worth seeking the advice of a mortgage broker who will be able to talk you through your options and match you with the most suitable lender.

what are the risks of remortgaging to release equity

How long does it take to remortgage and release equity?

Equity release mortgages usually take 4-6 weeks to process, but it depends on your circumstances and your application’s complexity.

If you approach your current lender and they approve your application, the process could be a lot quicker.

To help speed things up, you should gather your personal information and tidy up your credit history. It also helps to get a good solicitor on board and a house valuation through a qualified surveyor.

Having a specialist remortgaging broker on your side can also help the process go as smoothly as possible.

Potential drawbacks of remortgaging to release equity

You’re borrowing more money

Although you can get access to a lump sum of cash through equity release, don’t forget that your long-term debt will increase if you take out a bigger loan through remortgaging.

If you remortgage to borrow more than the amount your house has increased in value, your LTV will also increase, and you could have to pay higher repayment fees.

It’s also worth bearing in mind that if house prices were to fall, you could end up in a negative equity situation, where your outstanding mortgage loan exceeds the value of your home.

Possible early repayment charges

If you’re remortgaging during the term of your current mortgage deal, you may face early repayment charges (ERCs) or any early exit fee with your current lender. And if you’re switching lenders, you may need to pay set-up fees, solicitor and valuation fees - although some lenders may include these costs as part of a new mortgage deal.

It’s always wise to get advice from an independent mortgage broker when considering remortgaging to release equity. You’ll also want to avoid being turned down on multiple occasions - a good mortgage broker can match you with the lender most likely to accept your remortgage application the first time.

What are the alternatives to remortgaging to release equity?

Take out a personal loan.

You can usually borrow up to £35,000 through a personal loan. Although the interest rate is typically much higher, you can pay off a personal loan over a shorter period so that you will pay less overall.

Use a Credit card

A money repayment credit card can be helpful if you only need a small amount of cash quickly. Remember that you may not have to pay interest for an introductory period, but the rate will increase after this period, and you will have to clear the balance to avoid fees.

Joint mortgage

If you’re thinking about equity release to help a loved one get on the property ladder, you might want to consider the possibility of a joint mortgage or another similar product. Here’s some more information on mortgages to assist first time buyers.

A joint mortgage with another family member can be a viable alternative to a remortgage. You can become a guarantor if the other family member cannot afford the repayments, but if they can afford to contribute, both incomes will go towards the repayments.

Remortgaging to release equity with a mortgage broker

Remortgaging to release equity is a significant financial decision that requires careful thought and planning. If you cannot afford your monthly repayments, your home could be repossessed by the loan provider.

At Clifton Private Finance, our specialist mortgage brokers offer expert advice, guidance, and support. We have whole of market access to both high street and specialist mortgage lenders, meaning we can help you release home equity through the best remortgage deals currently available.

Find out more about our specialist remortgage service here >>