How to Remortgage to Release Equity: Unlocking the Value of Your Home

Introduction

For many homeowners, their property is their most valuable asset. Over time, as property values rise and mortgage balances decrease, you build up equity in your home. Remortgaging to release equity allows you to tap into the value of your property without selling it, providing a lump sum of cash that can be used for a variety of purposes, such as home improvements, paying off debts, or helping family members financially.

In this guide, we’ll explore how to remortgage to release equity, the benefits and risks involved, and how to navigate the remortgage process. Whether you’re looking to unlock funds for a major project or simply improve your financial situation, remortgaging can provide the flexibility you need.

What is Remortgaging?

Remortgaging is the process of switching your existing mortgage to a new deal, either with your current lender or with a different lender. When you remortgage, you can borrow more than your outstanding mortgage balance, allowing you to release some of the equity you’ve built up in your home.

For example, if your home is worth £300,000 and you have £100,000 left to pay on your mortgage, you could remortgage for £150,000, using the additional £50,000 as a cash lump sum. This lump sum is secured against your home, meaning that your total mortgage balance will increase, and you’ll have to make higher monthly repayments.

Why Remortgage to Release Equity?

There are several reasons why homeowners choose to remortgage to release equity:

1. Home Improvements: Many homeowners use the funds from equity release to finance major home improvements, such as an extension, a new kitchen, or energy-efficient upgrades. Investing in your property can increase its value and make it more comfortable to live in.
2. Debt Consolidation: Remortgaging can be a way to consolidate high-interest debts, such as credit cards or personal loans, into one lower-interest mortgage. This can reduce your monthly payments and simplify your financial situation.
3. Helping Family Members: Some homeowners choose to release equity to help family members with large expenses, such as education costs, weddings, or deposits for their own homes.
4. Supplementing Income: For older homeowners, remortgaging to release equity can provide a way to supplement retirement income or cover unexpected expenses.

The Process of Remortgaging to Release Equity

The remortgaging process involves several steps, and it’s important to understand each stage before moving forward. Here’s a breakdown of the typical remortgage process:

1. Evaluate Your Current Mortgage and Equity Before starting the remortgage process, you need to evaluate how much equity you have in your property and whether remortgaging is a financially viable option. To calculate your equity, subtract the outstanding balance of your current mortgage from the market value of your home. For example, if your home is worth £350,000 and your mortgage balance is £150,000, you have £200,000 in equity.Keep in mind that lenders typically won’t allow you to borrow 100% of your home’s equity. Most lenders will allow you to borrow up to 80-90% of your property’s value, depending on your financial situation, the property market, and your lender’s policies.
2. Shop Around for Remortgage Deals Once you know how much equity you can release, it’s time to compare remortgage deals. You can choose to remortgage with your current lender or shop around for better rates with a new lender. Working with a mortgage broker can help you compare deals from different lenders and find the best option for your needs.When comparing remortgage deals, pay close attention to the interest rate, fees, and any early repayment charges on your existing mortgage. It’s essential to calculate whether the savings from a lower interest rate will outweigh any costs associated with switching lenders.
3. Submit Your Application Once you’ve chosen a remortgage deal, you’ll need to submit a formal application to the lender. This will involve providing documentation about your income, outgoings, credit history, and property value. The lender will also assess the current market value of your home, which may require a property valuation or survey.
4. Receive Your Mortgage Offer After reviewing your application and conducting a property valuation, the lender will make a formal mortgage offer. This offer will outline the terms of your remortgage, including the loan amount, interest rate, monthly repayments, and any fees. Make sure to review the terms carefully before accepting the offer.
5. Complete the Legal Work Your lender will instruct a solicitor or conveyancer to handle the legal aspects of the remortgage. This includes transferring the mortgage to the new lender, ensuring that any existing charges on the property are cleared, and updating the Land Registry with the new lender’s charge.
6. Release of Equity Once the remortgage process is complete, your lender will release the additional funds (the equity) to you. These funds can be used for whatever purpose you choose, whether it’s home improvements, debt consolidation, or other financial needs.

Costs Involved in Remortgaging to Release Equity

While remortgaging can provide access to cash, there are several costs involved in the process that you should be aware of:

1. Early Repayment Charges (ERCs) If you’re remortgaging before your existing mortgage deal ends, you may face early repayment charges (ERCs). These charges are typically a percentage of the remaining loan balance and can add up to a significant cost. Before deciding to remortgage, check whether your current mortgage has any ERCs and factor these into your decision.
2. Valuation Fees Lenders may require a property valuation to determine the current market value of your home. Some lenders offer free valuations as part of their remortgage deal, while others may charge a valuation fee, which can range from £150 to £500, depending on the property’s value.
3. Legal Fees Just like when you first bought your home, remortgaging involves legal work, which typically requires a solicitor or conveyancer. Legal fees for remortgaging are usually lower than for a property purchase but can still range from £300 to £1,000. Some lenders offer remortgage deals that cover legal fees, so it’s worth checking if this is included.
4. Arrangement Fees Some lenders charge arrangement fees for setting up the new mortgage. These fees can vary but are often around £1,000. Again, some remortgage deals offer fee-free arrangements, so be sure to compare offers.
5. Exit Fees Your current lender may charge an exit fee, also known as a mortgage discharge fee, when you pay off your existing mortgage. These fees are typically around £100 to £300 and are added to the overall cost of remortgaging.

Risks of Remortgaging to Release Equity

While remortgaging to release equity can provide access to funds, there are risks involved that you should carefully consider:

1. Increased Monthly Payments By borrowing more against your home, your overall mortgage balance will increase, which means higher monthly repayments. If interest rates rise or your financial situation changes, you may struggle to keep up with these payments.
2. Longer Mortgage Term Remortgaging to release equity can extend the length of your mortgage, meaning you’ll be paying off your home loan for a longer period. While this can reduce your monthly payments, it also means you’ll pay more interest over the life of the loan.
3. Negative Equity Risk If property values fall, there’s a risk that you could end up in negative equity, where your mortgage balance is higher than the value of your home. This can make it difficult to sell your property or remortgage in the future.
4. Impact on Inheritance Releasing equity from your home reduces the value of your estate, which can impact the inheritance you leave to your beneficiaries. If this is a concern, it’s worth discussing your plans with family members and seeking professional advice.

Alternatives to Remortgaging

Before deciding to remortgage, it’s worth considering alternative options for accessing the funds you need:

1. Equity Release If you’re over 55, you may want to consider equity release as an alternative to remortgaging. Equity release allows you to access the value of your home without making monthly repayments. Instead, the loan is repaid when you die or move into long-term care. Equity release is a more flexible option for retirees who want to access cash without increasing their monthly outgoings.
2. Personal Loan Depending on the amount of money you need, taking out a personal loan may be a better option than remortgaging. Personal loans typically have shorter repayment terms and don’t require you to secure the loan against your home.
3. Home Improvement Loan If you’re looking to fund home improvements, consider a home improvement loan. Many banks offer unsecured loans specifically for home renovations, which can be a more cost-effective way to borrow compared to remortgaging.
4. Second Charge Mortgage A second charge mortgage allows you to borrow against the equity in your home without remortgaging your existing loan. This can be a useful option if you have a good rate on your current mortgage but still want to release equity.

Conclusion

Remortgaging to release equity can provide a flexible way to access the value of your home without selling it. Whether you’re looking to fund home improvements, consolidate debt, or support family members, remortgaging allows you to unlock the equity in your property and use it as a financial resource. However, it’s essential to carefully consider the costs and risks involved, as increasing your mortgage balance will lead to higher repayments and potentially longer loan terms.

By shopping around for the best remortgage deal, comparing costs, and considering alternative options, you can make an informed decision about whether remortgaging is the right choice for your financial situation.