How to remortgage to release equity from your property

If you have paid off a good chunk of your mortgage or the value of your house has gone up, you may have built up a lot of equity in your property.

Remortgaging to release equity could be a way to access extra cash – perhaps for home renovations, repaying short-term debts or helping with your children’s education.

If you are considering this, you will need to weigh up such benefits against the longer-term costs of doing so and also look to see if there are any better-value alternatives.

Please note that this is not the same as equity release as a source of retirement income. Find out more about retirement equity release.

We’ll look at how you can remortgage to release equity, how much cash you can access, and the costs and risks.

Summary

• Remortgaging to release equity is a way to access extra cash

• Lenders consider factors like your finances and credit records to decide how much equity you can release

• Alternatives to remortgaging include personal loans, credit cards and joint mortgages

Remortgaging: what does it mean? 

When you remortgage, you take out a new mortgage on the same property.

As you’ll likely have paid off more of your mortgage, you may be able to get a lower interest rate with either your current lender or a new one, with the equity in your home acting as security.

If you have a fixed-rate mortgage, you’ll lose your rate at the end of your term and move on to the lender’s standard variable rate (SVR), which is often much higher.

So, remortgaging is a good way to avoid the SVR and usually get a better rate, which will reduce your monthly payments.

You can also remortgage to release equity in your home, which we’ll explain later in detail.

What is equity?

Your equity is the percentage of your home that you own outright. It’s the difference between the amount left to pay on your mortgage and the property’s market value.

Equity is related to your loan-to-value (LTV) ratio, which is the difference between the mortgage left to pay and the property’s value.

For example, if you buy a house for £200,000 with a £150,000 mortgage and a £50,000 deposit, the LTV is 75%, and your equity is £50,000 (the size of your deposit).

Both LTV and your equity will usually change over time.

For example, if the house’s value increases to £250,000, your equity becomes £100,000, and the LTV becomes 60%. If you’ve also paid off £10,000 by that time, the LTV would be 56%, and so on.

Your lender will use your LTV to discuss rates if you want to remortgage to release equity. A lower LTV (i.e. more equity) generally means better rates for you.

What are the reasons for remortgaging to release equity?

People choose to borrow more money against the value of their house for a number of reasons.

Bear in mind that not all of these reasons are necessarily good ones, and remortgaging may not be the best solution in each case.

• Home renovations
• Funding higher education
• Helping their children buy a home
• Repaying short-term debts
• Starting a business
• Extra income as you retire (this is a special case – learn more about equity release for retirement).

It is worth emphasising that remortgaging to release equity is just another way of borrowing money.

This means it puts you deeper in debt, and for a longer period of time than a short-term loan.

How do I remortgage to release equity in my property?

Usually, homeowners remortgage because their mortgage deal is coming to an end, or to access better deals as they now have more equity and a lower LTV.

However, another option is to borrow more money against the property.

Homeowners most often consider this an option if their home has risen significantly in value (thus lowering the LTV and increasing their equity).

This means that they can borrow more money without necessarily increasing their monthly repayments, as the extra equity has come from an increase in the property’s value.

To use the previous example: if your house has risen in value from £200,000 to £250,000 and so changed the LTV from 75% to 60%, you could either get a lower repayment rate, or you could keep the same repayment rate and borrow that extra £50,000 (to keep the LTV at 75%).

How much equity could I release from my home?

In the same way as when you first took out your mortgage, a lender will want to check over your finances and credit record to calculate an offer based on their lending criteria.

Some lenders have calculators on their websites, which give you an idea of the amount you could borrow.

A mortgage broker can give you an independent picture of your borrowing prospects. You can also use the Unbiased mortgage calculator.

In addition, the mortgage lender’s offer will depend on how much equity you currently own.

Your age is also a factor. It can be more difficult to remortgage your property when you are nearing retirement, as it is assumed you will have less income to pay off the loan.

The top age limit for new mortgages is typically 65, but you may struggle to remortgage if you are over 50.

All of this information will be used to determine how much extra a mortgage lender will let you borrow, and how good a deal they will offer you.

What are the costs of remortgaging to release equity?

When remortgaging, you may have to pay an early repayment charge – these fees can apply even beyond the end of your fixed-term period.

The amount to pay is typically a percentage of the outstanding loan, so can run into thousands.

You might also have to pay an exit fee. In addition, your new mortgage may have set-up fees, depending on the lender and the specific deal.

On the other hand, if you can get a significantly lower interest rate, it may counteract these costs.

And if your home’s value has increased a lot, then even with the extra costs, you may ultimately consider it to be worthwhile.

The most important tips to bear in mind are:

• Take advice from a mortgage broker as to whether remortgaging will be worth the cost
• Shop around for the best deals
• Watch house prices closely – it’s better not to remortgage in this way if the value of your home has just fallen

What are the risks of remortgaging to release equity?

Remember that when you remortgage to release equity, you are increasing your loan.

If your home has risen in value, then it may not feel that way (since your repayments may not change), but you will still end up paying back more than you otherwise would have, and it will probably be longer before you finish paying off the loan.

If you borrow more than the amount by which your equity has increased, then your loan-to-value ratio will rise.

This may result in higher repayments, so you’ll need to make sure you can afford these (and will continue to afford them if interest rates rise).  

Bear in mind that if house prices were to fall, you could find yourself in negative equity.

Negative equity means that your outstanding loan is larger than the total value of your home. This is a bad predicament to be in, as it can make it difficult to remortgage, and very hard to sell your home.

Also, beware of remortgaging without first taking advice. Rushing into it may mean you are turned down by multiple lenders, which will affect your credit score.

You should wait until a mortgage broker is confident that your application will succeed.

What are the alternatives to remortgaging if you need cash?

Remortgaging may not be the easiest or the best value way for you to access extra money.

Below are some alternatives to consider.

• A personal loan: The interest rate may be higher, but you pay it off over a much shorter length of time, so you save money in the long term. You may be able to borrow up to £35,000.
• Credit card: If the amount you need is lower, you could take out a credit card. You may be able to pay no interest for a set period of time. Be aware that the rate will be high after that, and there may be fees to pay. Don’t do this unless you are confident of being able to pay the money back quickly.
• Joint mortgage: If you want to help your children get on the property ladder, some lenders offer joint mortgage products. These take into account the incomes of both applicants (e.g. both you and your child), so they can potentially borrow more. Of course, if they can’t make the repayments, you will be responsible for paying them instead.

Remortgaging to release equity – FAQs

How easy is it to remortgage to release equity?

If you’re remortgaged before, the process should be similar and you’ll likely face an affordability check.

The amount of equity you can release and the rate you get depends on various factors, including how much equity you have in your property and how much you want to access.

How long does it take to release equity through remortgaging?

It can take between four to eight weeks for the application process to complete, so give yourself plenty of time to apply before you need the funds.

Is it a good idea to remortgage to release equity?

Whether it’s a good idea to remortgage to release equity depends on your circumstances. There may be alternative options worth considering.

It’s a good idea to talk to a mortgage broker about your circumstances and what the best option is for you.

Is it better to remortgage or release equity?

Whether you remortgage or release equity depends on your circumstances and financial priorities such as whether you want to clear your mortgage early or access equity in your home.

It’s worth getting advice from a mortgage broker as remortgaging for equity release may not be the right solution for everyone.

Can I rent out my house if I have equity release on it?

Your mortgage terms will say whether you can let your property.

Some mortgage deals specify a period where the property has to be your main residence, so do check the terms carefully before renting your house out.

Can I release equity to get a deposit for a buy to let property?

You can release equity from your house to put down a deposit on another property, but you will usually need significant equity to do this.

If you want to let the property, you will need a buy-to-let mortgage. These mortgages tend to need a 25% deposit, are often interest-only and usually carry higher interest rates and fees. It is a good idea to get financial advice before taking this step.

Can I sell my house if I have equity release?

Yes, you can sell your house if you have equity release.

If you have remortgaged to release equity and decide to move home, you can either port your mortgage (take it with you to your new home) or apply for a new mortgage.

The most cost-effective option depends on your circumstances.

If you found this article useful, you might also find our guides on remortgaging on help to buy and shared equity mortgages informative, too.

Need help with your remortgage?

Unbiased can quickly connect you to a qualified mortgage broker who can help you release equity from your property while remortgaging, and find you the best deal.