Remortgaging to release equity

When can you remortgage to release equity?

If you have been paying off a mortgage on your home for several years, you may have built up significant equity in it. Remortgaging could let you access some of that equity as a cash loan – but is it right for you?

Remortgaging can be a good way to borrow, but it’s always a decision to take carefully. That’s especially true now, with interest rates among the highest for many years.

To help you understand how remortgaging to release equity works and whether it might be right for you, we’ve put together this guide that covers:

• What is remortgaging?
• Is remortgaging the same as equity release?
• What is remortgaging to release equity?
• How much equity can I release by remortgaging?
• Are there any downsides to remortgaging?
• How to remortgage to release equity
• When might remortgaging to release equity be impossible or unsuitable?
• What are some alternatives to remortgaging?

If you are interested in remortgaging to release equity, we hope this guide will help. Our selected advisers are also available to discuss your circumstances and offer further information and advice. Just call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment for you.

Please note: This article is provided for information purposes only and does not represent financial, mortgage or investment advice. If in doubt, you should seek independent financial advice. 

What is remortgaging?

If you already have a mortgage, remortgaging is when you switch to another mortgage on the same property. You might do this through your current lender, or move across to a different lender altogether.

Remortgaging is often done to get a better mortgage deal and reduce monthly payments, without releasing any cash. For example, if you come to the end of a fixed-rate mortgage you may switch to another fixed-rate deal. This could mean your monthly repayments are less than if you were to move onto a variable rate mortgage. 

Remortgaging to release equity

Another reason that you may consider remortgaging is to raise cash from the equity you have built up in your home. You switch to a new mortgage bigger than your existing one, with the extra borrowing secured against your home. Usually this means that your monthly mortgage payments will go up. 

You may decide to remortgage to release equity for lots of reasons, including paying for home improvements, clearing short-term debt, or helping your children onto the property ladder.

Is remortgaging the same as equity release?

Remortgaging a house to release equity and ‘equity release’ are two different things:

Remortgaging to release equity will usually involve taking out a new repayment or interest-only mortgage where you continue to make monthly repayments to pay off the loan.

Equity release is available to over 55s only, and is normally done through what’s known as a lifetime mortgage. This also involves borrowing money secured against your house, but there are no mandatory monthly repayments. Instead, the loan is repaid through the sale of your home when you pass away or move into long-term residential care.

If you are over 55, you may be faced with a decision on ‘remortgage or equity release?’. Reading the rest of this guide will help you to understand the issues around this choice, and of course our selected advisers will be happy to help further. If you’d rather talk to someone, please call us on 0808 178 3055 or request a call back and we’ll arrange a no-obligation appointment with one of our selected advisers.

What is remortgaging to release equity?

A remortgage to release equity is when you take out a new mortgage that is bigger than your current mortgage. This can be a new mortgage altogether, but sometimes it’s arranged as a separate loan to run alongside your existing mortgage.

A remortgage differs from a new mortgage in that instead of needing a cash deposit, the equity in your home acts as a type of deposit.

Let’s look at a simple example:

• You currently have £140,000 left to pay on your existing mortgage on a property worth £240,000 (so you have £100,000 equity in your home).
• You get a remortgage for £170,000 – giving you £30,000 cash, LESS any fees you pay to the lender, solicitor and broker.
• You now have about £70,000 equity in your home instead of £100,000.

As the amount you owe increases when you release equity through a remortgage, it is likely that your monthly payments will also increase. However, this may be offset if interest rates have fallen since taking out your original mortgage, or if the loan to value ratio is lower. 

Extending the term (length) of your new mortgage may also offset the effect that borrowing more money has on your monthly repayments.

How much equity can I release by remortgaging?

To work out how much equity you can release through remortgaging, you need to look at:

• The value of your property. You can check the Land Registry search facility, or sites such as Zoopla or Rightmove to get an idea of your property’s value. Alternatively, you may be able to get a valuation from a local estate agent.
  

• How much mortgage you still have to pay. Check your latest mortgage statement, look at your online mortgage account, or call your lender for an up-to-date statement.

The difference between these two amounts is how much equity you have in the property. However, you may not be able to release all of the equity in your home through remortgaging. Your lender will look at your financial situation including your income, the value of your home, your age, your credit rating and how much you can afford to pay each month.

Are there any downsides to remortgaging?

Remortgaging could be a suitable way to free up money currently tied up in your home. However, there are some potential disadvantages and risks that you should be aware of:

• If you borrow more money, your monthly mortgage payments are likely to be bigger. 
• If your circumstances change and you find that you can’t afford the repayments, your home could potentially be repossessed. 
• You may go into negative equity if house prices fall.
• You may have to pay an early repayment charge to your current lender if you remortgage.
• Costs involved with a remortgage could include an arrangement fee and valuation fee from your lender, broker/advice fees, and conveyancing/legal costs. 
• Other forms of borrowing may be less expensive.

How to remortgage to release equity

The starting point when remortgaging to release equity is to get your mortgage paperwork together. You’ll need to know what type of mortgage you have, the current interest rate, the size of your monthly payments and how much longer your mortgage is set to run for. You should also get an idea of your home’s current value.

Next, it’s time to see what deal you can get from a lender. Make sure you focus only on deals for remortgaging to release equity, as these will differ from a remortgage where the aim is just to switch to a better interest rate. 

We’d suggest talking first to your existing lender to see what they can offer you. Then it could make sense to contact a mortgage broker to see what kind of deal they can access. For example, our selected advisers can search for deals from some of the UK’s leading mortgage providers.

Once you have decided which deal to go for, making the application should be relatively straightforward. If you remortgage with your current lender, you may not need conveyancing services from a solicitor as it could be classed as a ‘product transfer’. But if you move to another lender, it’s likely that you’ll need a solicitor.

How long does it take to remortgage and release equity?

A remortgage might typically take around two months from application to completion. However, it could take more time if your chosen lender is dealing with high demand. But if you remortgage with your existing lender, it could take just days to go through as a product transfer. 

When might remortgaging to release equity be impossible or unsuitable?

Remortgaging isn’t for everyone. You may find it difficult or even impossible to remortgage, or it may not make financial sense. Here are some examples of when remortgaging may not be appropriate or possible:

Being older. It can get harder to remortgage as you get older, especially if you are retired or are nearing retirement. This is one reason why you may explore whether equity release may be suitable, as it’s specifically designed for later life borrowers. 

Bad credit history. You may find it difficult or impossible to remortgage if you have a bad credit history, even if you have never missed a mortgage payment. In some cases, you can remortgage with bad credit, although you may find you pay a higher interest rate. 

Different personal circumstances. If your financial situation has changed since taking out your mortgage, lenders may not offer you a remortgage. Examples may include losing or recently changing your job, or going self-employed.

Higher interest rates. Now that interest rates are at or near their highest for many years, you may feel that it’s not a good time to be taking on extra debt and additional monthly repayments.

Not enough equity. If the value of your home has fallen since you bought it, you could find it hard or impossible to remortgage. But that may not be the case: it depends on how much your home is worth compared to the size of your mortgage debt.

What are some alternatives to remortgaging?

You may wish to consider alternatives to remortgaging, especially if you fit into any of the categories mentioned above. Several alternatives may be available and more suitable:

A further advance. Your current mortgage lender may be willing to give you a further advance. This is typically a secured loan that’s separate to your existing mortgage.

A personal loan. The interest rate on an unsecured personal loan may be higher than a remortgage, but if you pay it back sooner it could be cheaper in the long run. However, a remortgage may allow you to borrow more or keep your monthly payments lower. 

Credit cards. This form of lending may be suitable for smaller amounts over a shorter period of time compared to a typical remortgage. You may even be able to borrow money with 0% interest with some credit cards.

Equity release. For homeowners aged 55+, an equity release plan lets you access tax-free cash. You don’t need to make regular repayments as it is usually repaid through the sale of the property when you pass away or move into long-term care.

Get advice from a remortgage broker

Are you looking to remortgage and release equity? Our selected advisers can provide the information and advice you need, and find you the best deals from some of the UK’s leading providers.

If you are aged 55+, they can also advise you on equity release as an alternative to remortgaging.

Simply call us on 0808 178 3055 or request a call back and we’ll arrange a telephone appointment with an adviser. There is no obligation to proceed, and only if you proceed with a remortgage or an equity release plan would you be expected to pay a fee, which will be explained to you by your adviser in advance.