Remortgaging is a popular way to release equity from your home as tax-free cash. The main reason homeowners remortgage is to switch to a better deal at the end of a fixed-rate period – potentially saving thousands of pounds a year compared to rolling onto the Standard Variable Rate. However, you can also take advantage of this opportunity to release cash from your property, to spend on things such as home improvements or to consolidate your debts. If you’ve owned your home for a number of years, there’s a high chance that it’s increased in value, meaning you could have access to more equity than you realize. In this guide, we’ll explain how remortgaging to release equity works, how much you’ll be able to release, what you can use your money for, and discuss risks and other options.
How Does Remortgaging to Release Equity Work?
When remortgaging, you are essentially taking out a new mortgage (usually with a new lender) and therefore you’ll still have to pass affordability and credit checks, as you did when you took out your original mortgage. Once accepted, your new lender will pay off your old mortgage and your new deal will begin. To learn more about how remortgaging works read our guide, ‘How Does Remortgaging Work?’ If you wish to release equity at the same time as switching to a better deal, your new lender will simply add the amount of equity you release to your loan, and then you’ll receive the money as tax-free cash. So if you are transferring a £200k mortgage and releasing £40k cash, your new mortgage capital will be £240k.
What Can I Use the Equity I Release by Remortgaging For?
Lenders will usually want to know what you plan to use the equity for, and some may not accept certain uses if they are deemed too risky, such as investing in a startup business. However, most lenders are quite flexible and will accept a range of uses. Some of the most common reasons homeowners release equity whilst remortgaging are:
- to fund home and garden improvements
- to buy a second home or Buy To Let property
- to buy a new car
- to fund holidays and travel
- to consolidate debts and credit cards
- to gift money to children or grandchildren
If you’d like to learn more about remortgaging to pay for home and garden improvements click here.
If you’d like to learn more about remortgaging to buy a second property click here.
If you’d like to learn more about remortgaging to consolidate debts and credit cards click here.
How Much Equity Can I Release When Remortgaging?
How much equity you’ll be able to release will depend on a number of factors; such as the value of your home, how much equity you own, how long you have left on your mortgage, your age, your affordability, and your credit score. It could also vary greatly from lender to lender, as will the interest rate offered, which is why it’s so important to speak to a mortgage broker who has access to a wide range pr products and understands the criteria of each lender. We’ll tell you how much equity you’ll be able to release and at what rate during your FREE no-obligation consultation.
Are There Any Downsides to Releasing Equity With a Remortgage?
As you are borrowing more money, your monthly repayments will likely increase – unless you also increase the term of the mortgage to keep your repayments down. Remortgaging is known as one of the cheapest ways to borrow because the relatively low interest rate will mean your monthly repayments will usually be less than other forms of borrowing. However, it’s important to be aware that you may end up paying more interest overall because remortgage loans tend to have a longer term than other forms of borrowing, and therefore you’ll be paying the interest for a longer period of time. Despite this, many people prefer to pay more interest overall if it means their monthly repayments will be lower, as this form of borrowing won’t eat into your income as much as a shorter loan with a higher interest rate.
When Might Equity Release Be a Better Option?
You could be eligible for Equity Release if the youngest homeowner is at least 55 years of age, you own a UK property worth at least £70,000, and you’ve paid off most or all of your mortgage. The newer type of Equity Release, called a ‘Lifetime Mortgage’, is a fair, flexible and trusted way of releasing equity from your home to live a more comfortable retirement. You can release up to 60% of the equity in your home as tax-free cash, either as a lump sum, monthly income or ad hoc withdrawals. You’ll still own your home and you can live in it until you die or move into permanent care, without ever going into negative equity.
One of the benefits of releasing equity with a Lifetime Mortgage rather than a remortgage, is that the interest can roll up into the loan, which is only repaid once you die or move into permanent care and the property is sold. This means you won’t have to worry about monthly repayments and you can spend more of your retirement income on the things you love. It also means you won’t have to pass affordability or credit checks as the loan and interest will be covered by the eventual sale of your property. Therefore, if you don’t qualify for a regular remortgage or you’d rather not take on the financial commitment of monthly mortgage repayments, Equity Release as a Lifetime Mortgage could be a better option for you.
We have a specialist Equity Release team, so we can help you decide which route is best for your situation during your FREE no-obligation consultation. To learn more about Equity Release please visit Michael Usher Equity Release.
The Bottom Line
If you own a reasonable amount of equity in your home, you can release some of it as tax-free cash by remortgaging. You can use your money for many purposes, such as funding home improvements, buying a second home or consolidating your debts. Providing you have good credit and you’re able to afford the monthly repayments you should have plenty of deals available to you. Alternatively, you may want to consider other options such as Equity Release, if you are eligible, and our advisors can help you make the right choice based on your situation.
We’ve been helping our local community buy second properties by remortgaging for over 30 years! We can search thousands products to find you a great deal that suits your needs perfectly. We’ll also guide you through the process and liaise with your lender and solicitor to ensure the process goes smoothly for you.
Book your FREE consultation with one of our friendly advisors to get going quickly. We have offices in Frimley and Basingstoke, or we can help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Think carefully before securing any other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage.
Equity Release includes Lifetime Mortgages and Home Reversion Schemes. We can advise and arrange Lifetime Mortgages and will refer to an approved specialist for Home Reversion Schemes.
