How to Remortgage to Release Equity from Your Home

So you've been paying your mortgage for a while now, and you've built up quite a bit of equity in your home. That's brilliant. But did you know that equity doesn't have to just sit there? You can actually tap into it through remortgaging, turning that paper value into real money you can use today.

Whether you're dreaming of that kitchen renovation, looking to consolidate some debts, or wanting to help your kids get on the property ladder, remortgaging to release equity might be the solution you're after. Read on to see how this works and whether it's the right move for your situation.

Understanding Home Equity And How It Works

Before diving into the remortgaging process, you need to get your head around what equity actually means and how much of it you've got tucked away in your property.

What Is Home Equity?

Think of home equity as the portion of your property that you truly own. It's the difference between what your home is worth on the current market and what you still owe on your mortgage. Simple as that. If your home is valued at £400,000 and you've got £250,000 left on your mortgage, you're sitting on £150,000 of equity.

But here's the thing, equity isn't static. It grows in two ways. First, every mortgage payment you make chips away at what you owe, automatically increasing your equity. Second, if property prices in your area go up, your equity gets a boost without you lifting a finger. Of course, the opposite can happen too if prices fall, but over the long term, UK property has generally been a solid bet.

Calculating Your Available Equity

Now, before you start planning how to spend that equity, you need to work out how much you can actually access. Lenders won't let you borrow against 100% of your home's value, which would be far too risky for them.

Most lenders will allow you to borrow up to 80-85% of your property's value through remortgaging, though some might stretch to 90% if you've got excellent credit and a stable income. So with that £400,000 property and £250,000 outstanding mortgage, you could potentially remortgage for up to £320,000 (80% of £400,000), releasing £70,000 in equity.

The exact amount depends on several factors: your income, credit score, age, and the lender's specific criteria. It's worth getting a proper valuation done too, as your home might be worth more than you think.

How Remortgaging To Release Equity Works

The Remortgaging Process

Remortgaging to release equity essentially means taking out a bigger mortgage than what you currently owe, and pocketing the difference. You're not getting a second mortgage on top of your existing one; you're replacing your current mortgage with a new, larger one.

The process starts with shopping around for the best deals. You'll need to provide proof of income, bank statements, and details about your property. The lender will arrange a valuation to confirm your home's current worth. Once approved, your new lender pays off your old mortgage and gives you the extra amount you've borrowed.

The whole process typically takes 4-8 weeks, though it can be quicker if you're staying with your current lender. You'll need to factor in costs like valuation fees (£300-£1,500), legal fees (£500-£1,500), and potentially an early repayment charge if you're leaving your current deal before it ends.

How Much Equity Can You Release?

The amount you can release depends on your loan-to-value ratio (LTV). If you're currently at 60% LTV and the lender allows up to 80%, you've got room to manoeuvre. But remember, the more you borrow, the higher your monthly payments will be.

Age plays a role, too. If you're approaching retirement, lenders might limit how much you can borrow or shorten the mortgage term, which could push up monthly payments. Some lenders offer special products for older borrowers, including retirement interest-only mortgages where you only pay the interest monthly and the capital when you sell or pass away.

Your affordability is essential. Lenders will stress-test your finances to guarantee you can handle the higher payments, even if interest rates rise. They'll scrutinise your income, outgoings, and any other debts you have.

Impact On Your Monthly Repayments

Releasing equity means borrowing more money, which inevitably means higher monthly payments. If you're adding £50,000 to your mortgage at 5% interest over 20 years, you're looking at roughly an extra £330 per month. That's a significant chunk of change that needs to fit comfortably within your budget.

But it's not just about the amount; the interest rate matters too. If you're coming to the end of a fixed-rate deal, you might find current rates are higher than what you've been paying. Even without releasing equity, your payments could increase. Add in the extra borrowing, and you need to be certain you can afford the new payments.

Timing can work in your favour, though. If you've got years left on your mortgage term, spreading the extra borrowing over this period can keep the monthly increase manageable. Some people even extend their mortgage term when remortgaging to keep payments down, though this means paying more interest overall.

Common Uses For Released Equity

Homeowners choose to release equity for many different reasons, often to improve their homes, manage finances, or support family goals. Here are some of the most common ways people use the funds:

• Home improvements: Renovations remain the top reason for releasing equity. Upgrades such as new kitchens, extensions, or loft conversions can increase your home’s value, meaning you could gain more equity in the long term.

• Debt consolidation: Many use released equity to pay off multiple high-interest debts, combining them into one manageable mortgage payment. This can simplify finances and potentially reduce monthly costs, though it also means securing previously unsecured debt against your home.

• Helping children buy their first home: With rising property prices, parents often release equity to provide deposit support for their children. It’s a way to pass on financial help without waiting until later life.

• Property investment: Some homeowners use the funds to purchase a buy-to-let property, generating additional income. While this can be rewarding, it also comes with financial risks and landlord responsibilities.

• Education or career development: Released equity can help fund university tuition, private school fees, or professional retraining, supporting long-term personal or family goals.

• Lifestyle improvements: Others simply want to enjoy their money, whether that’s a dream holiday, a new car, or a financial cushion for emergencies. While it’s important to borrow responsibly, using equity to enhance quality of life is a personal decision.

Releasing equity can open new financial opportunities, but it’s important to weigh your options carefully and choose a purpose that aligns with your long-term goals.

Advantages And Disadvantages Of Releasing Equity

Benefits Of Remortgaging For Equity

The biggest advantage is access to a large sum of money at relatively low interest rates. Compared to personal loans or credit cards, mortgage rates are typically much lower because the loan is secured against your property. You could borrow £50,000 at perhaps 5% interest rather than 15% or more on unsecured lending.

There's also flexibility in how you receive the funds. Most people take a lump sum, but some lenders offer drawdown facilities where you can access the equity as needed, only paying interest on what you've actually borrowed.

If you use the money wisely, investing in your property or clearing expensive debts, you could improve your overall financial position. And unlike downsizing, you get to stay in your home and neighbourhood.

Potential Drawbacks to take into account

But let's be honest about the downsides. You're increasing your debt and putting your home at greater risk. If you can't keep up with the higher payments, you could face repossession. That's not something to take lightly.

The costs can add up, too. Between valuation fees, legal costs, and potentially early repayment charges, you might spend several thousand pounds just to access your equity. These costs eat into the amount you actually receive.

You'll pay more interest over the life of the mortgage. That £50,000 borrowed over 20 years at 5% actually costs you about £79,000 once interest is factored in. It's essentially a very expensive way to borrow if you're using the money for something that doesn't generate a return.

And remember, you're reducing the equity buffer in your property. If house prices fall, you could end up in negative equity, making it difficult to move or remortgage again in the future.

Alternative Options To Remortgaging

Before committing to remortgaging, it's worth exploring other options that might better suit your needs. Here are some practical alternatives to consider:

• Second charge mortgage (secured loan): This option lets you borrow additional funds while keeping your current mortgage deal. It’s useful if you’re on a low fixed rate, but the second loan usually comes with a higher interest rate than your main mortgage.

• Equity release for over-55s: Lifetime mortgages allow you to unlock your home’s value without making monthly repayments. Instead, the interest rolls up and is repaid when the property is sold or upon your passing. It’s convenient, but it can reduce the amount left as inheritance due to compound interest.

• Personal loans: For smaller borrowing needs, an unsecured personal loan may be quicker and easier. Though interest rates tend to be higher, you’ll pay it off faster and won’t risk your property as collateral. Platforms like Mortgage Connector can help you compare these types of options with expert broker guidance.

• Downsizing: Selling your current home and moving to a smaller or less expensive property can free up equity without taking on new debt. While this involves moving costs and potential stamp duty, it provides genuine access to your property’s value.

• Further advance from your lender: Some lenders let you borrow additional funds without remortgaging entirely. It’s usually faster and simpler, though the new amount may come with different rates and terms.

Exploring these alternatives helps you make an informed decision, ensuring you choose the most cost-effective and practical option for your financial goals.

Conclusion

Remortgaging to release equity can be a smart financial move when done for the right reasons and at the right time. It gives you access to funds tied up in your property without having to sell, and at interest rates that beat most other forms of borrowing. But it's not a decision to rush into, so take time to crunch the numbers properly.

Getting professional advice is worth its weight in gold here. A good mortgage broker can help you understand exactly how much equity you can release, find the best deals, and guide you through the process. They'll also be straight with you if they think it's not the right move for your circumstances.

Your home is likely your biggest asset, and the equity you've built up represents years of hard work and mortgage payments. Whether you choose to release it or let it continue growing, make sure it's a decision that aligns with your long-term financial goals and gives you peace of mind.

Frequently Asked Questions

How much equity can I release when remortgaging?

Most lenders allow you to borrow up to 80-85% of your property's value through remortgaging, though some might stretch to 90% with excellent credit. The exact amount depends on your income, credit score, age, and the lender's criteria.

What are the main costs involved in remortgaging to release equity?

You'll typically face valuation fees (£300-£1,500), legal fees (£500-£1,500), and potentially early repayment charges if leaving your current deal early. These costs can total several thousand pounds, reducing the amount you actually receive.

Can I remortgage to release equity with bad credit?

Yes, remortgaging with bad credit is possible, but more challenging. You'll likely face higher interest rates, stricter lending criteria, and lower loan-to-value limits. Specialist lenders cater to adverse credit, though improving your credit score first could secure better terms.

Is remortgaging to release equity better than downsizing?

Remortgaging lets you access funds whilst staying in your home, with lower interest rates than unsecured loans. Downsizing genuinely frees up capital without increasing debt but involves moving costs and stamp duty. The best choice depends on your attachment to your home and long-term financial goals.

What's the minimum amount of equity needed before remortgaging?

Whilst there's no fixed minimum, most lenders prefer you to have at least 20% equity in your property before considering equity release. Having more equity typically secures better interest rates and terms, making the remortgaging process more worthwhile financially.