Updated: February 17, 2022

Remortgaging a House to Release Equity

Looking to remortgage to release equity from your home? It can work wonders for some people - but there's caveats! Find out if it's right for you & how to do it!

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Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: February 17, 2022

There are multiple reasons why remortgaging to release equity in your property can be a good idea. The funds can be used to carry out home improvements, gift a deposit to a family member or consolidate debt. It can be one of the cheapest ways to borrow money but is not without risk.

In this guide, we’ll unpack the details of how an equity release remortgage works, help you decide whether it’s the right choice for you and show you where to look for the best advice.

How it works

Equity is the amount of your property you own outright – essentially the amount of profit you would make if you sold the house and repaid all your outstanding mortgage debt.

As that profit is tied up in bricks and mortar it’s inaccessible to you. However, if you increase the size of your loan when you remortgage you can take some of that equity as a lump sum to use as you wish.

You can remortgage either with your existing lender or move everything to a new one, if they’re offering better terms overall. The best way to find out what’s available is by speaking to a broker. They’ll be able to scour the market and present to you a number of different options.

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How to remortgage to release equity

If you’re considering remortgaging your property, there’s a few simple steps you can take to make the whole process much more straightforward.

Step 1. Calculate your equity

To do this you’ll need to know the total amount of debt you have tied up in your home (including your mortgage balance and any secured loans), and have a realistic idea of the current value of your property.

Your most recent mortgage statement will show mortgage debt but make sure you check the terms and conditions for any additional termination fees.

You can get an indication of your property’s value using local estate agent websites or by visiting the land registry website and inputting details of recently sold properties in your area. Be sure to compare like for like and consider any renovations.

Step 2. Work out your loan to value ratio

The best rates are available, generally, when the loan to value ratio (LTV) is low. LTV is the amount of outstanding debt against the value of the property.

For example: If your property is worth £300,000 and you owe £150,000 on your mortgage, you own 50% of it outright. The more of your property you own, the less of a risk lenders will see you as.

Consider the purpose of the loan too. If you’re using the money you release to build an extension that will add value. Likewise, if you’re using it to help a son or daughter buy their first home, the capital will most likely increase in value – albeit your offspring may get the direct benefit, not you. In these cases, the lender may insist you seek independent financial advice if the amount borrowed exceeds £50,000.

Step 3. Prepare your paperwork and check your credit reports

Applying for a remortgage follows a very similar path to getting your original mortgage. You’ll still need to provide I.D and evidence of your earnings. Have a look at our mortgage application guide, for all the documentation you’ll need – the application process will run much more swiftly if you have everything ready beforehand.

The lender will also carry out a new credit search so it’s a good idea to download your current credit reports before applying and deal with any issues that arise.

Step 4. Speak to a broker

At this stage, the smart move is to speak with an experienced remortgage broker, rather than approach any lenders directly.

If you approach each lender individually they’ll want to carry out a credit check before going ahead with any deal. If you don’t meet all their lending criteria, they may ultimately reject the application anyway.

Not only will this waste your time, but it can also lower your credit score so you pay higher rates when you do find the right lender.

The brokers we work with have extensive knowledge of the remortgage market and will take time to understand your specific requirements before guiding you to the right lender first time. If you get in touch we can arrange for an advisor to contact you straight away.

Calculate your equity release and new repayments

Try our calculator below to work out how much equity you can release and what your new mortgage repayments and LTV will look like afterwards.

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Remortgage Calculator

Our remortgage calculator can tell you what your new loan-to-value (LTV) ratio and repayments will be after you've remortgaged and released equity


Estimate if exact value is unknown
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Estimate if exact value is unknown
£
Amount must be less than property value
This is the capital you’ve built up by paying your mortgage
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What will the new term length be after you've refinanced?
years
Keep in mind that this could change if your LTV rises
%

New LTV:

After you have remortgaged, your new LTV ratio will be and your new mortgage payments will be as indicated below…

New Monthly Repayments:

Get started with an expert broker to find out how much they can help you save on your remortgage.

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How soon can you do it?

A remortgage typically takes 6-8 weeks to complete. It’s usually advisable to remortgage at the end of your fixed term to take advantage of the best rates and avoid any early settlement fees.

If you feel that remortgaging while still tied to a fixed deal might be your best option, it’s essential you seek professional guidance from a broker to avoid potentially making a costly error.

If you’re thinking you may want to release capital locked up in your home you should do your research a few months before your deal runs out to give yourself plenty of time to make an informed decision.

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Eligibility criteria

Applying for a remortgage follows a very similar process to applying for your initial mortgage and each lender will apply their own internal eligibility criteria, which may include:

  • Amount of equity in your property
  • Loan-to-value (most lenders have a maximum LTV of between 75%-85%)
  • Your age
  • Your credit history
  • Affordability checks – income and outgoings
  • The outstanding term of your mortgage

Reasons for equity release versus amount borrowed

The decision reached by a lender can also be affected by the purpose of the loan. Loans to buy or improve other properties are subject to more stringent checks and may be capped at £250,000 by some lenders.

If you’re looking to renovate and add value to the remortgaged property you may be able to borrow up to 125% LTV in some circumstances as the value of your property will increase by the improvements being done, although the cost of borrowing will be quite high.

Releasing equity to clear debt may result in a maximum LTV of 60% and some lenders will not loan money for this purpose.

Alternatives to consider

Remortgaging to release equity usually means adding the amount borrowed to your existing mortgage debt and paying it back over the remainder of its term. In the long term this can end up costing you considerably more even if you borrow at favourable rates.

For example: Remortgaging and releasing a lump sum of £20,000 which is paid back over 20 years at a rate of 3%, you will pay a total of £12,000 in additional interest. Borrowing the same amount with a personal (unsecured) loan at a rate of 8% over 5 years will mean you pay more per month for those 5 years, but the additional interest you pay over the life of the loan must be taken into account.

So, it’s worth considering the alternatives to remortgaging and releasing equity, which include:

  • Downsizing – you take your equity in cash and move into a cheaper property
  • Use your savings – this may leave you scrambling for funds in the event of any unexpected expenses
  • Overdrafts – ideal for small amounts but you’ll need to ensure you can pay back within a couple of years
  • Credit cards – similar to overdrafts, with a good credit rating you may be able to borrow up to £15,000 unsecured at 0% but will typically need to clear the balance within 2 years or face mounting interest
  • Personal loan – as detailed above this might be the cheapest option if it is affordable, but be wary that although it is not secured against your property arrears will adversely affect your credit rating
  • Secured loan – not usually recommended as it is secured against your property and you generally pay higher rates than with a standard mortgage

Get matched with an expert remortgage broker today

The only way to decide whether you should remortgage and release equity from your property is to thoroughly assess all the pros and cons according to your current circumstances. It may be the most affordable way to borrow and achieve your aims. But with so many variables it is difficult to make the best decision without the right help.

We work with mortgage brokers who have access to high street lenders and niche mortgage providers. Whatever your circumstances, we’ll match you with a mortgage broker who will help you work out the true cost of remortgaging and find you the best deal if you choose to go ahead.

Call today on 0808 189 0463 or enquire online to arrange a no-obligation chat.

FAQs

What happens if house prices fall?

When you remortgage and release equity, you increase the size of your mortgage debt and decrease its LTV. If house prices fall your debt will remain the same but your LTV will increase. That’s one of the reasons why it is vital that you seek expert advice before committing to borrow more against your home.

Can I add any fees to my mortgage?

In most cases, yes. Generally fees would have little impact on your monthly mortgage payment but it’s worth taking advice on all your options as there may be a cheaper way to pay the fees.

Can I remortgage to release equity for my retirement?

If you are looking to release equity for your retirement you should seek advice from someone qualified to advise on equity release products. There may be occasions when remortgaging is the right thing to do but you will need to consider all options first.

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Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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