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Author: Carl Shave-Director
Updated on May 28th, 2024

Remortgage to Release Equity

If you own your own home and have been steadily paying off your mortgage loan over a number of years, then a certain amount of equity will have built up in your property. It might also have gained in value through a natural increase in house prices since you originally bought it.

Remember, remortgaging to release equity isn’t the same as equity release!

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There might come a time when you need to raise a significant amount of money. Perhaps you want to make home improvements, inject cash into a new business or fund a son or daughter through university.

Remortgaging your property to release the equity stored in it can be an effective way to obtain the cash to make your plans happen.

However, before committing to a remortgage, you must carefully consider all your options and take time to plan how and when you will do it. The actions you take at this point will affect your financial situation for years to come.

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What is equity?

The amount of equity you have in your home is determined by the value of your mortgage, minus the outstanding balance remaining.

So, if your original mortgage (the price you paid for your home) was £250,000, and the outstanding balance remaining is £150,000, then the amount of equity in your home is £100,000. This amount will increase over time as you continue with monthly repayments on the loan.

Mortgage lenders may also include the increase in the market value of your property since you bought it. Be aware that house prices can fall as well as rise, so you will not always be able to count on this.

Read Our Remortgaging Guide

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How does remortgaging to release equity work?

You will first need to have a suitable amount of equity built up in your home. Many lenders will usually impose a minimum. This can typically range from 10% to 15% of the total equity remaining in your property, depending on the lender and your circumstances.

Let’s say your home is worth £300,000 and you have £175,000 left on the mortgage. This means you have £125,000 in equity. A lender won’t allow you to release all of it so, for example, you may want to release £25,000.

Next you need to decide if you are going to stick with your current lender or use a new one. Remember, if you leave your current mortgage term early, you may be required to pay an early repayment charge or fee. If you’re unsure about what lender to use, seek the advice of a specialist broker.

Once you have chosen a lender, you will need to go through their application process. Here they will look at a range of factors to ensure that you are a suitable borrower.

Once approved, your funds will be released and they can now be put towards their intended use.

You will now have £100,000 equity in the property, as you have released £25,000. This means that your new mortgage payments are very likely to be more.

How much equity can I release through remortgaging?

You’ll be pleased to know that lenders don’t set a limit on how much everyone can release. Instead, there are a number of things they look at to determine what you can release.

Two of the main factors they will consider are the value of your home and the amount of equity you have in it.

Typically, the more equity you have in your property, the more you can borrow. Furthermore, if your property is valued at a higher price, this can also increase your borrowing.

Remember that almost all lenders will need a certain amount of equity to remain in the property in order for them to lend to you. Some lenders may only be willing to lend funds for specific reasons, as defined in their individual criteria.

To get an idea of what you could borrow, try our free remortgage calculator. This will give you a rough guide and help you prepare if you’re looking to remortgage.

How do I know how much equity I own?

A great way to get an idea of how much you have is by checking the Land Registry. Here you will be able to search for similar properties in your area that have sold recently.

This will give you an idea of your property value. You can then compare this to how much you have paid into your mortgage.

Alternatively, you can get an estimated value from a local estate agent.

What can I use the equity for?

There are a number of things you can use your released equity for, both personal and practical.

Some of the most common uses include:

  • Home improvements or alterations.
  • Starting a new business.
  • A son or daughter going to university.
  • A second property.
  • Getting married.
  • Care payments.
  • Consolidating debts into one monthly payment.
  • A special purchase, such as a car or dream holiday.

The list could go on – there are almost limitless reasons why you might need a significant lump sum of money at any given time.

If you’re unsure about what you wish to use your equity for, reach out today. One of our expert advisers will discuss your circumstances and recommend the best options.

What are the pros and cons of remortgaging to release equity?

As with any financial commitment, understanding both the pros and cons is essential. Below we have highlighted some things to consider before you release equity from your home.

Pros

  • There’s a wide range of things you can use the equity for.
  • You can typically borrow more compared to personal loans.
  • You don’t need to move or sell your house to release equity.

Cons

  • As the loan amount increases, your product term could become longer.
  • As you end up borrowing more, your mortgage payments increase.
  • Interest rates can sometimes increase if you are moving to a new deal.
  • Some lenders impose early repayment charges if you want to leave a deal before the term ends.

Are there any alternatives to remortgaging to release equity?

Ensuring you make the right decision before you commit to any type of finance is essential. Remortgaging to release equity might not be suitable for everyone, but there are alternatives available.

Some of the most suitable options include:

  • Equity release – if you are over the age of 55, this option might be right for you. Equity release allows you to release equity from your home, but this doesn’t affect your mortgage payments. Instead, the loan is paid off once the house is sold if you pass away or move into care.
  • Personal loans – these can be a better short-term option for individuals and can be cheaper too. This is because the loan duration is shorter, meaning you pay less interest over time.
  • Credit cards – while not the best options, if you require a smaller loan amount a credit card could be useful. If you find the right card, interest rates can be reasonable. Furthermore, you even have the option to make repayments early, which will incur zero interest.
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