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Remortgage to release equity from your home

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Remortgage to release equity from your home

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Last reviewed on 25th November 2023 by Martin Alexander (Mortgage Advisor)

If you’ve owned your home for several years, you’ll likely have equity in your home. Remortgaging can release some of the cash tied up in your home, but there’s much to consider beforehand.

This guide will explain whether remortgaging to release equity is worth doing, the risks involved and alternatives.

What is equity?

Equity is how much of your home that you own. You can work out your home equity by deducting what you owe on your mortgage from the value of your property.

For instance, if your home is worth £200,000 and you have £150,000 left to pay, you’d have £50,000 equity.

Why remortgage to release equity?

The main reason to remortgage to release equity is to give you access to the cash tied up in your home, which you can use for the following:

Some lenders will check what you intend to do with the equity.

How does remortgaging to release equity work?

When remortgaging, you change mortgage deals, including a new interest rate and cost. You don’t have to release equity, but you’ll need equity in your home to remortgage. If you decide to release equity, you’ll withdraw some of the capital in your home. 

For instance, if you bought a home for £200,000 with a £20,000 deposit, your loan-to-value (LTV) would be 90%. A few years later, you’ve paid £30,000 of your mortgage, and your house is now worth £250,000. Your remaining mortgage would be £150,000, and you’d have £100,000 equity.

Based on this example, if you remortgage for £200,000 at 75% LTV, you’d take £50,000 in equity and have a new mortgage of £200,000. You’d then have £50,000 equity left in your home.

How much equity can I release from my home?

The amount of equity you can release will depend mainly on your equity amount and property value. Lenders will also check your income and affordability, as your mortgage will likely increase as you borrow more.

Your credit rating can also affect the amount of equity you can release. Lenders will be reluctant to let you withdraw a higher amount of equity if you’ve run into credit issues.

You can speak to a mortgage advisor for a more accurate idea of the amount of equity you can release.

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

Pros

  • Remortgaging can allow you to switch to a better rate
  • You can use equity to invest or spend on your home
  • The process of remortgaging is typically straightforward
  • Access cash that’s otherwise tied up in your home
  • You can typically borrow larger amounts than a loan

Cons

  • The cost of your mortgage will likely go up
  • You’ll pay more interest overall due to the additional borrowing
  • If you can’t afford the new mortgage, you risk losing your home
  • It could be an expensive way of borrowing compared to a personal loan
  • If you’re in your fixed mortgage period, you may have to pay an early repayment charge due to remortgaging early
  • You could fall into negative equity if house prices drop

What are the alternatives to remortgaging?

There are alternatives to remortgaging, such as:

  • A further advance from your current lender – You can speak to your lender to discuss whether you can borrow more. Your lender may allow you to stay at your current rate, and there are fewer checks than moving to another lender. However, other lenders may have better rates.
  • Personal loans – You’d typically pay higher interest on a personal loan, but you can pay it off much sooner than a mortgage. However, compared to releasing equity, you’ll be limited on how much you can borrow with a personal loan.
  • 0% credit cards – You could borrow from a 0% credit card, but you’ll have a limit on how much you can use. You’ll also need to ensure you repay the balance before the 0% interest period ends.

Frequently asked questions

A remortgage is when you take a new mortgage with a different lender. As you switch mortgages, you’ll have a new interest rate and mortgage cost.

Loan-to-value (LTV) is your mortgage amount compared to the property’s value, typically noted as a percentage. If you had a £75,000 mortgage to buy a £100,000 home, your loan-to-value would be 75%, as the mortgage is 75% of the property value.

As you’re borrowing more by releasing equity, the cost of your mortgage will likely increase. You’ll need to check whether you can afford the higher mortgage costs.

The main reason for remortgaging is usually to find a better mortgage rate. But, when you release equity, your new interest rate will likely be higher, as your loan to value will increase. Lenders typically reserve their best rates for 60% LTV mortgages.

You can release equity if you can afford the cost of a higher mortgage. However, waiting until your fixed period ends is best to avoid paying an early repayment charge (ERC).

You can ask your current lender to borrow more if you need capital sooner. This is known as a further advance.

Negative equity means you don’t have any equity in your home. This can happen if property prices drop. You won’t be able to remortgage if you’re in negative equity, as there’s no equity.

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About the author

Martin Alexander
Senior Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.