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Remortgage to release equity

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Wednesday, October 28, 2020

0800 195 0490

Home Remortgage Remortgage to release equity

Remortgage to release equity

Get Your Free Quote.

✔ No impact to your credit score
✔ Compare the best mortgages
✔ Quick, simple and easy
✔ Safe, secure and confidential

About Martin Alexander

Martin has been a mortgage advisor for over 15 years. Check to see if you qualify or call us on 0800 195 0490.

Last Updated on 10th October 2020

If you’ve owned a property for several years, you may have accumulated equity. A remortgage to release equity can be useful, as it allows you to access capital that’s tied up. Releasing equity is often used for home improvements, to help fund other property purchases or to consolidate debt. If you need access to capital, releasing equity from your home could be a viable option.

Applying for a remortgage isn’t something to rush and shouldn’t be taken lightly. An experienced advisor can assess your current situation and check to see if a remortgage is viable. Our advisors specialise in remortgages and can guide you through the process from start to finish.

If you’re looking to remortgage your own home, then it’s highly recommended to utilise the experience and expertise of an advisor. Mortgage commitments are long term, so it’s crucial to get a professional outlook before making any decisions. Releasing equity will often result in an increase in monthly repayments so you’ll have to check what deals are affordable before committing.

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What is equity?

Equity doesn’t need to be confusing, as it’s quite simple to calculate. Equity is the value of the share you own in your property, minus the outstanding mortgage balance. For instance, see the example below:

Current property value: £250,000
Outstanding mortgage: £150,000
Equity = £100,000

Equity can also be calculated if your property value has increased. For instance:

Property purchase price: £250,000
Outstanding mortgage: £150,000
Current property value: £300,000
Equity = £150,000

A decrease in property value can also leave homeowners in ‘negative equity’. If you’re in negative equity, then a remortgage would be impossible. This is because there is no equity to release. See the example below:

Property purchase price: £250,000
Outstanding mortgage: £225,000
Current property value: £200,000
Negative equity = Minus £25,000

Equity can accumulate in two ways. The first method of increasing equity is if the property increases in value. The second method is by repaying your mortgage over a period of time. As mortgage payments are made, your outstanding balance decreases, which increases the equity you have.

Using the example of negative equity above, once your outstanding mortgage is below £200,000, equity will start to accumulate. This is as long as the property value doesn’t further decrease. For instance, if your outstanding mortgage balance was £150,000, then there would be £50,000 of equity.

Any equity accumulated can then be released either with a remortgage or by selling your property.

How to remortgage to release equity

A remortgage is a term used for a new mortgage. On occasion, homeowners may remortgage to get a better mortgage deal. In this case, your outstanding mortgage balance would remain the same if no equity is released.

Releasing equity with a remortgage is slightly different. If you want to release equity you’ve accumulated, then the new mortgage needs to be larger than your current outstanding mortgage balance. For instance, if a property is worth £250,000 but the outstanding mortgage is £150,000, a new mortgage of £200,000 may release £50,000 of equity.

Your new lender would pay the balance of the mortgage to your previous lender. The additional funds would then be released to you. Lenders won’t allow you to remortgage the full value of the property, as this would be a 100% mortgage. You’d need to leave some capital in the property, providing a similar purpose to a deposit.

Should I remortgage to release to equity from my home?

If you need access to capital, a remortgage isn’t always the best option and requires careful consideration. For example, if you’re on a great mortgage rate, current rates may be higher. Having an unbeatable mortgage rate may mean that a remortgage isn’t the most viable option to release capital. If raising funds is a matter of urgency, but you don’t wish to jeopardise your current mortgage deal, a secured loan may be a better option.

Read more: Should I remortgage or use a secured loan?

Releasing equity often means taking on a larger mortgage than you currently owe. This typically entails an increase in monthly repayments and can extend the duration it will take to clear the overall balance of your mortgage. A remortgage is a new financial commitment, so it isn’t something that should be rushed.

The first thing you should calculate is the approximate amount of equity you’ve got. Estate agents typically offer free valuations and can give you an indication of how much your property is currently worth. You can then calculate the equity you have, by comparing the property value to your mortgage balance.

Be sure to clarify the cost of a valuation before arranging one, as all companies will vary. Once you apply for a remortgage, your lender will also carry out a mortgage survey to establish the value of your property.

As every case is different, you can make an enquiry with an advisor at any time. We’ll then assess your individual circumstances to inform you on whether or not a remortgage to release equity is a viable proposition. Our advisors often have access to exclusive deals that aren’t available directly from lenders, ensuring you’re getting the best deal possible.

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