Remortgage to Release Equity
Remortgaging to release equity is a great way to get some cash if you are in desperate need of it, therefore in this article, we’re going to discuss remortgages and the concept of equity. We’ll also discuss how remortgaging to release equity works and explore alternatives to remortgages.
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What is Remortgaging?
Remortgaging is when you take out a different mortgage from your current or another provider: you replace your present mortgage with the new one.
Remortgaging is often a good decision if you’re on a variable rate mortgage that is proving too costly; by switching to a fixed rate, you could save a lot of money, but you’ll be bound to a particular term, usually between two and five years.
Remortgaging also helps you release equity in your home, meaning you’re borrowing more against your home to get some money.
Can You Remortgage to Release Equity With Bad Credit?
You may be able to remortgage to release equity with a bad credit record, but it’ll typically be at a higher interest rate.
What Happens to Your Mortgage Repayments
If you’re granted a remortgage to release equity, your monthly repayments will likely increase. You’ll probably get an interest rate that’s a bit higher. Still, if you have a lower LTV ( the ratio of the value of your mortgage against your property’s valuation), then you should be able to get a lower interest rate.
Remortgaging to Release Equity: Documents And Fees
Getting a remortgage to release equity will require many of the documents you needed when you applied for your mortgage, this includes the following:
- Your ID Document,
- Three months of payslips (or other proof of income) to determine whether you can make your monthly repayments,
- Three months of bank statements,
- Your P60 form,
- And your utility bills.
Early repayment charges are one fee you’ll have to pay, mainly if you’re still committed to a fixed mortgage. These are fees you’ll pay to your mortgage lender if you remortgage while still under the terms of your fixed mortgage. Generally, this is a percentage of what you owe on your property. Depending on the value of your home, this can be very expensive.
On top of this, you’ll also likely have to pay:
- Legal fees: These are the fees you pay to a solicitor to transfer your mortgage to a different lender.
- Valuation fees: If you switch lenders, they’ll revalue your property to determine its worth. The valuation cost will vary depending on the size of the property and can be as high as £1,500.
- Admin charges: Also known as a deeds release fee: this is a payment to give your solicitor the title deeds.
- Booking fees: This can cost up to £300 and may also be known as a reservation fee.
- Arrangement fees: This is a fixed percentage of how much you’re borrowing and is one of the highest fees.
If you know you can afford to pay these and will be able to make the new mortgage repayments, then a remortgage to release equity might be the right choice for you.
What is Equity?
Equity is the amount of your home that you own outright. How much equity do I have in my own property? You might be wondering.
Well, if your property is worth £500,000, and you have £150,000 left to pay, then you have £350,000 equity. All you need to do is subtract house prices from their outstanding mortgage values.
Remember that the more you deposit into your property when you purchase it, the more equity you’ll have from early on.
Why Do Equity Release?
Typically, people will release equity from their homes so that they’re able to pay for various home improvements. However: they might have other reasons, including:
- Paying for their child’s tuition,
- Buying a new car,
- Covering expensive medical bills,
- And helping someone else with their mortgage downpayment (particularly useful when house prices are high).
Remember that not all lenders will let you get equity from your home for some of these purposes. And depending on how you spend your equity, your LTV will be either higher or lower.
Home improvements will be capped at about an 80% LTV, or even higher, with specific lenders. You can get a 90% LTV for special situations, such as buying the final share in shared ownership property.
Remortgaging a Buy-to-Let Property to Release Equity
Remortgaging a buy-to-let property to release equity is possible; most lenders will have no issue releasing equity on a buy-to-let property.
How Remortgaging to Release Equity Works
By increasing your mortgage loan, your new or current lender can grant you the specific amount of equity you’d like to release. For example, by remortgaging for £350,000 on a home worth £300,000, you can get £50,000 worth of equity.
You’ll be doing a product transfer when remortgaging with your current lender. The amount of equity you’re able to release will vary depending on factors, including:
- Your age and whether this is your first home.
- Your credit rating.
- Your income and present debts.
- How much equity you own in your home vs your outstanding mortgage.
- The valuation of your property.
- And what the outstanding term of your mortgage is.
Upsides of Remortgaging to Release Equity
If you have a lot of built-up equity, remortgaging will likely not change your loan-to-value very much, and you could use this money to fund whatever you need (as allowed by your lender).
Downsides of Remortgaging to Release Equity
Remortgaging will increase the size of your mortgage, and your interest rate might also go up either if you’re increasing your LTV or your credit score has worsened. This isn’t even mentioning the cost of early repayment charges, which may put you off from getting a remortgage in the first place.
If you want to avoid these charges, you may find cheaper options: we’ll discuss this next.
Alternatives to Remortgaging to Release Equity
If you’re looking for an alternative to remortgaging to release equity, then you might want to consider one of the following:
- A personal loan: although the interest rate may be higher, you can pay these off in a much shorter period. You can borrow quite a sum too, likely up to £25,000 or even more.
- A further advance: Instead of remortgaging, you might be able to get the funds you need from a further advance: this is when you take on more borrowing with your lender.
- A second charge mortgage: Instead of remortgaging, you might consider getting a second mortgage: these are secured against your property, and the lender takes second priority in case you are unable to make your mortgage payments.
- Selling unneeded assets: this is a good alternative if you have a lot of valuable assets at home that you no longer make use of (such as musical instruments or computer equipment).
- Interest-free credit card: An interest-free credit card could have a £15,000 upper limit if your credit record is good.
Remortgaging to Release (Negative) Equity
You may not be able to remortgage if you’re in negative equity because there might not be equity to release. This is best discussed with your lender, who can explain the situation at hand.
Remortgaging a Joint Mortgage
You can remortgage a shared mortgage as each co-owner can take out a remortgage on their particular share. However, you may find that the number of lenders available for remortgages is lower than with regular mortgages.
FAQs
What is the downside to equity release?
The primary disadvantage of equity release is that it doesn’t pay you the whole market value of your home. It’s much more profitable to sell your property on the open market.
How long does it take to remortgage and release equity?
It could take between four to eight weeks to release equity through remortgaging. This means you should give yourself plenty of time before you need the funds.
Can you be refused equity release?
You can be refused equity release, but this is most likely to occur if you have county court judgments (CCJs) on your credit file. In addition, you might get rejected if there are problems with your property.
How can I get equity out of my home without refinancing?
Home equity loans are the most common way homeowners attempt to get into their equity without refinancing. With these, you borrow against your home equity.
How much does remortgaging cost?
Remortgaging involves many fees, such as legal, booking and arrangement fees, in addition to early repayment charges. This can be very costly, so make sure that you’re making the right decision before doing so.
Is there a better alternative to equity release?
You could always sell assets to get the money you need: for example, you could sell valuable personal assets that you no longer need or want. You could also attempt to take out a personal loan.
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