How To Remortgage To Release Equity

If you need access to cash for home improvements or other large expenses, remortgaging to release equity from your property can be a good option.

We’ll tell you exactly how to release equity, what you can use the funds for, and how to use our remortgaging calculator to calculate how much equity you might be able to release.

Can you remortgage your home to release equity?

If you have enough equity in your property, you can release some of it when you remortgage. As with any mortgage, this depends on meeting a lender’s affordability and eligibility criteria, but for many people, it’s a great option for freeing up cash for projects like home renovations, replacing a car, debt consolidation, or school fees.

However, some lenders only allow certain loan-to-value (LTV) when securing debt against your home. As a general rule of thumb, the higher the LTV, the less chance you have of remortgaging to release equity.

How does it work?

Remortgaging to release equity is different from a straight equity release mortgage. Remortgaging is simply switching your mortgage for a new one with a larger loan amount, meaning that when you pay off the original mortgage, you have cash left over. Depending on your existing mortgage terms, you may have to factor in costs and early exit fees.

How to remortgage to release equity

We recommend using a mortgage broker who specialises in arranging remortgages with equity release. This will increase your chances of saving time and money in the long run and ensure you secure the best deal.

Make an enquiry to set up your free introduction.

After that, your broker will guide you through the following steps:

• Calculating your loan-to-value ratio (LTV) – this is the difference between the outstanding balance on your mortgage and the value of your property
• Work out how much equity you want to release and why
• Finding the best remortgage deal with the lowest rates
• Optimising your credit records and completing all of the necessary paperwork for your application

Your initial consultation with a remortgage specialist will be free, and you will not be obligated to proceed. It will also not leave any marks on your credit report.

How much can you release?

The exact amount of equity you can release will depend on a few factors, including affordability and how much equity you have available. Most high street lenders will be open to lending you around 80% of the current value of your home, although this may vary depending on what you want the funds for. A few can go higher.

For example, if you own a home currently worth £300,000 and have an existing mortgage for £150,000, you could remortgage at £240,000 – 80% LTV, pay off your existing mortgage, and release £90,000 in cash.

Lenders want to be sure you can afford the increased monthly repayments associated with a larger mortgage, so your income and other financial commitments will also come into play. Most lenders cap borrowing at 4 and 4.5 times your annual income, sometimes 5 or even 6 times in exceptional circumstances.

Try our remortgage calculator below to determine how much equity you can release and what your mortgage payments will look like.

How soon can you release equity?

The exact time you must wait before remortgaging varies between lenders, but in most cases, you will need to have owned the property for at least six months. Depending on your reasons for wanting to do it, a few mortgage providers have little or even no waiting period.

If you need to remortgage to release equity sooner than the six-month milestone, see our guide to remortgaging a property early.

What the funds can be used for

There’s a good amount of flexibility around what you can use the released equity for. Still, it’s worth noting that it isn’t a free-for-all. You can’t just use the cash for whatever you want, and some lenders will loan at different LTVs depending on how you intend to spend the equity you release. Some may also ask for proof of the planned use of funds.

Examples of what the funds can be used for include…

• Home improvements
• Debt consolidation
• Furnishings
• Cars
• School and medical expenses
• Buying another property
• Holiday of a lifetime
• Buying out a partner after separation

Most mortgage lenders class the above as ‘standard’ expense and will cap the LTV at around 80%. Some lenders may allow higher. This may be increased to 90% in special circumstances, such as a straight mortgage swap or to fund purchasing the final share in a shared ownership house.

Remortgaging to release equity for investing, savings, paying a tax bill or business investment is not generally allowed. Lenders are also likely to want to see builders’ quotes for home improvements and structural changes. Some lenders may also factor any unsecured borrowing into their affordability calculations.

Is releasing equity through a remortgage a good idea?

Releasing equity can finally mean you can purchase the car you’ve always wanted or visit your dream holiday destination, but there are also a number of things you should consider before applying.

Advantages

• Access to money was previously tied up with property
• There is a great deal of flexibility regarding what the funds can be used for—renovations, paying off loans, the holiday of a lifetime, etc.
• Potential for further opportunities to release equity in the future if property prices rise
• Some lenders have retention products, which often include better rates as they are exclusive to current borrowers

Disadvantages

• Your overall debt burden will increase due to higher monthly repayments
• A mortgage will require you to repay more in interest than a shorter-term loan, and there will be other costs associated with a remortgage, such as early repayment fees.
• If property prices fall, there’s a possibility you may fall into negative equity.

Can you release equity without remortgaging?

Remortgaging isn’t the only option if you need to release equity. There are other ways of making the most of cash tied up in your home.

Common alternatives include…

• Taking out a second mortgage: also called a second charge mortgage or a secured loan. This loan is secured against your property, with the lender taking second priority after your existing mortgage provider. A secured loan can be a more flexible option than remortgaging, and you may find you can borrow more this way, depending on your circumstances. It’s a cost-effective alternative if ending your current mortgage would incur high exit fees or if you’ve already got a great interest rate you don’t want to sacrifice to remortgage.
• A personal loan: If you’re looking for a smaller amount of up to £25,000, an unsecured personal loan could work out better for you. These are usually very quick to arrange and paid off over a shorter period, so you may have higher monthly repayments but will pay less interest overall.
• A bridging loan could be an alternative to remortgaging if you need finance quickly, but only as a stop-gap measure. Bridging loans are often quicker but can be expensive, so get advice from your broker if this is something you’re considering.

Refinancing a buy-to-let property to release equity

Many lenders are happy to look at remortgaging a buy-to-let property to release equity depending on circumstances, such as what your overall property portfolio looks like and whether or not the rental income on the property makes the new repayments affordable. Check out our article on remortgaging on a buy-to-let for more information.

Why use Online Mortgage Advisor?

Simply put, our mortgage broker-matching service could help you save time and money in the long run if you need to remortgage and release some equity.

If you’re keen to get started, the first step is to get matched with a broker specialising in remortgages. A broker who has particular experience in this type of finance will be able to guide you through the specific requirements and restrictions around remortgaging to release equity and should be able to save you significant time and money in the process.

We have vetted all the advisors we work with, so call us now at 0330 818 7026 or make an online enquiry to access our broker-matching service. We’ll quickly assess your needs and match you with a broker who meets your circumstances.