Remortgage to Release Equity: Is It the Right Move?

Many homeowners have built up significant equity through property value growth and years of mortgage repayments. Remortgaging can provide relatively simple access to some of that value without the need to move home or take out unsecured debt. 

However, this is a big process and it’s important to weigh the benefits, all potential costs, equity release vs remortgage and the many long-term impacts it could have on your finances. Our experts have compiled this blog post to explore whether it is the right choice for you to remortgage to release equity.

What Is Equity?

Equity in regards to home ownership, is the part of your property that you own outright. This can be easily worked out by subtracting whatever the remaining balance on your mortgage deal is from the current value of your home. Either by paying off your mortgage or depending on the rises and falls within the housing market, you will get a boost to your overall equity.

An example of working our home equity:

What Does Remortgaging To Release Equity Mean?

Remortgaging to release equity involves switching to a new mortgage deal and borrowing more than your current outstanding mortgage balance. The additional amount borrowed is based on the equity available in your property and is usually paid to you as a lump sum. 

Unlike a standard remortgage, which is often used to secure a better interest rate or terms, an equity release remortgage is specifically designed to unlock funds tied up in your home for other financial needs.

Why Do People Release Equity Through A Remortgage?

Home Improvements

Home improvement mortgages are ideal for things like extensions, clean energy additions and even total renovations which can all be very costly. Remortgaging to release equity can open up substantial funds for the work to be completed. If the improvements add further value to the home this can be a long-term equity building investment.

Debt Consolidation

Some homeowners can use the released equity funds to combine multiple debts into one manageable payment through a debt consolidation mortgage. This can greatly simplify finances and has a strong potential of reducing monthly outgoings. Our experts have comprehensive information about the debt consolidation process.

Major Expenses

Similarly to home improvements, there are many other major expenses in life. Things like paying for education costs, paying for weddings, helping other members of the family and anything else that requires large down-payments can all be handled through released equity.

Property Investment

Property can be an ideal investment, but requires substantial capital to get started. Homeowners may remortgage to release equity to fund a buy-to-let mortgage, another traditional mortgage or a different investment opportunity. 

Equity Release vs Remortgage: What’s the Difference?

When deciding between equity release vs remortgaging, it is important to remember that both can be used to unlock money tied up in a property, but individually they work in very different ways and are designed for different types of homeowners and financial situations.

Remortgaging

Remortgaging involves replacing an existing mortgage with a new one, either from the same lender or a different provider. This option is generally available to homeowners who can meet affordability and lending criteria.

• Available to those who meet affordability requirements
• Monthly repayments are required throughout the term
• Interest rates and borrowing amounts are based on income, credit history and varying aspects of your financial circumstances
• Usually best suited to homeowners who are still working and have a regular income
• Can be used to raise additional funds while retaining full ownership of the property

Equity Release

Equity release, on the other hand, allows eligible homeowners, who at this stage are typically aged 55 and over, to access some of the value tied up in their property without needing to move. The most common form is a lifetime mortgage.

• Tend to be more available to older homeowners
• Often requires no mandatory monthly repayments
• Interest is usually added to the loan balance over time
• The loan is generally repaid when the property is sold, usually after the homeowner moves into long-term care or passes away
• Can provide access to tax-free cash while allowing homeowners to remain in their property

We do not offer this type of equity release or lifetime mortgage.

How To Remortgage To Release Equity

1. Work out your available equity

Estimate or get a valuation of the current value of your property and subtract whatever is left on your mortgage balance from the figure. This will give you a clear indication of any available equity. – It should be remembered though that just because the equity is there, doesn’t mean the full amount can be released. 

2. Check affordability

Lenders will then look at assessing your income, current credit commitments, your financial position and all outgoings. This is an affordability check to make sure that you can continue to repay any additional borrowing.

3. Compare mortgages

Next is to look at interest rates, any repayment fees, potential early repayment charges and processing fees. It is important to extensively look through the lending market for the best deal available. 

4. Apply for the remortgage

You will normally need to provide proof of income, identification and details of your property and existing mortgage at this part of the process.

5. Funds are released

As long as the remortgage deal has been accepted, the funds will be released to your account and can be used for whatever you desire, whether you are looking to consolidate debt, make some home improvements or another significant expense. 

How Much Equity Can You Release?

Multiple factors can influence the amount of equity available for release upon your application. This includes a loan-to-value limit set by the lender, affordability assessments, complete verification of income, your credit history and the amount of equity you have garnered. 

Be sure to remember that equity available is not the same as equity you can borrow against.

For example, a homeowner with £200,000 of equity will not automatically be able to release £200,000. Lenders will cap borrowing based on their LTV limits and affordability criteria.

Pros And Cons Of Remortgaging To Release Equity

Before deciding whether to remortgage to release equity, it’s important to weigh up both the benefits and potential drawbacks before taking the first steps.

Pros

• Access funds without having to move home
• Mortgage rates may be lower than some forms of unsecured borrowing
• Funds can be used for a variety of purposes, including home improvements, debt consolidation or major purchases
• Provides an opportunity to switch to a more competitive mortgage deal

Cons

• Increases the amount of borrowing secured against your property
• Monthly mortgage repayments may rise
• More interest could be paid over the lifetime of the mortgage
• The amount of equity remaining in your home will be reduced

Is Releasing Equity Through a Remortgage Right for You?

Looking at equity release vs remortgaging can be a practical solution for some homeowners, but it is not a be-all-end-all for every situation.

It May Be Suitable If:

• You have built up a significant amount of equity in your property
• You can comfortably afford any increase in monthly repayments
• You have a clear and worthwhile purpose for the funds you wish to release

It May Not Be Suitable If:

• Your current finances are already under pressure
• You’re focused on reducing debt before retirement
• Alternative funding options could meet your needs at a lower cost or with less risk

As with any borrowing decision, it’s important to consider both the short-term benefits and the long-term impact on your finances before proceeding with a remortgage.

Understanding Your Options Before You Borrow

Remortgaging to release equity is an effective process, but it may not always be the right solution for everyone. Taking on additional borrowing that is secured against your property is a significant financial decision that has potentially serious consequences. 

Before proceeding with this course of action, it is pivotal that you understand the long-term costs of borrowing, how repayments may affect your budget and if there are any other, more suitable options. For tailored guidance about the remortgage to release equity process, contact the team at Proper Advice to get started on your remortgage.

Think carefully before securing other debts against your home. The overall cost of repayment of other debts might be more when added to your mortgage. 

Your home may be repossessed if you do not keep up repayments on your mortgage. 

You may have to pay an early repayment charge to your existing lender if you remortgage.