Remortgaging To Release Equity

If you’ve built up equity in your home, you might be sitting on a pot of cash you can put to good use. Whether you want to renovate, clear debts, or invest in something big, remortgaging to release equity can be a smart way of raising the money you need. 

But before you dive in, it’s important to understand the process, what’s involved, and whether it’s the right choice for you. This guide explains everything in simple terms so you can make a more informed decision.

What Is Home Equity?

Home equity is the portion of your home that you own outright. It’s the difference between what your property is worth and how much you still owe on your mortgage. For example, if your home is valued at £250,000 and you still owe £150,000, your equity is £100,000. 

The more you pay off your mortgage (or the more your home’s value increases), the more equity you build up.

Why Would You Release Equity?

Releasing equity can give you access to extra cash without having to sell your home. Here’s why people do it:

• Home improvements. Want a new kitchen, an extension, or a loft conversion? Releasing equity can help cover the costs.

• Debt consolidation. If you have high-interest debts, rolling them into your mortgage could reduce your monthly outgoings.

• Big purchases. Whether it’s university fees, a wedding, or a new car, accessing equity can make it more affordable.

• Buying another property. Some people use released equity as a deposit for a second home or buy-to-let investment.

• Helping family members. Gifting equity to children for their own property deposit is a common reason for remortgaging.

• Retirement planning. Releasing equity can be an option to boost your income in later years.

How Long Does It Take?

The process typically takes four to eight weeks, depending on your lender and how complex your situation is. If you’re staying with your current lender, it might be quicker. If you’re switching to a new lender, you’ll need to go through affordability checks and a property valuation, which can take a little longer.

Either way, it’s a good idea to start planning and looking for the right lenders who can help at least three months before your current mortgage deal ends. Taking steps well in advance will prevent your mortgage from slipping onto your lender’s standard variable rate (SVR) after your current deal ends. 

How Does It Work?

When you remortgage and release equity, you're basically taking out a new mortgage for more money on your current home. Your existing mortgage gets paid off, and the extra money is released to you as a lump sum. 

Sounds pretty straightforward, right? Well, as long as you follow certain steps in the remortgage process, then it should be. Here’s how it works:

1. Work out your equity – Subtract your outstanding mortgage from your property’s current value.

2. Check your affordability – Lenders assess your income, expenses, and credit score before approving additional borrowing.

3. Find the best remortgage deal – A mortgage broker (like us!) can help you compare lenders and secure a competitive rate.

4. Apply for the new mortgage – You’ll need to submit documents like payslips, bank statements, and proof of ID.

5. Get a property valuation – Your lender will check your home’s market value to determine how much equity you can access.

6. Legal checks and paperwork – A solicitor will handle the legal side, including transferring funds and updating lender details.

7. Receive your money – Once everything is approved, the extra funds are released into your bank account.

Now, all that equity previously tied up in bricks and mortar is yours to spend as you wish - congratulations!!

How Much Equity Can You Release?

The amount of equity you can release will vary from lender to lender, depending on what their maximum borrowing limits are. Currently, the highest you can go to is usually 95% loan-to-value (LTV), but this largely depends on which lender you choose and how they will assess your income, credit history, and affordability.

For example, let’s say your home is worth £400,000 and your current mortgage balance (before remortgaging) is £200,000. So, as things stand, your existing loan-to-value ratio is 50%. Now, adding in the maximum borrowing limits, here’s how your remortgage with released equity could work out:

• At 95% loan-to-value (LTV), the maximum mortgage would be £380,000.

• After repaying your current mortgage (£200,000), you’d be left with £180,000 in released equity.

What Happens to Your Mortgage Repayments?

Releasing equity increases your mortgage balance, which inevitably means higher monthly repayments unless you extend the term of your loan. Stretching out the mortgage term can reduce the amount you pay each month but with more interest repayable overall. 

The mortgage-rate deal you choose will also influence your mortgage repayments, which is why it’s important to find the most competitive interest rate for your circumstances. 

Pros and Cons

Remortgaging to release equity offers a lot of positive opportunities to use the money tied up in your property for a whole host of reasons, but there are a few things to think about before you make any final decisions. Here’s the good and the bad. 

Why It’s a Great Idea:

• Access to a large sum of money at lower interest rates than personal loans or credit cards.

• Helps with debt consolidation, reducing your overall monthly outgoings.

• Can increase your property’s value if used for home improvements.

• Keeps you in your home while accessing its value.

What to Look Out For:

• Bigger mortgage repayments if you don’t extend the term.

• Risk of negative equity if house prices fall.

• Fees and charges – Remortgaging isn’t free, and there could be early exit fees with your current lender.

• Lender criteria – Borrowing more isn’t guaranteed, especially if your income has changed or you have adverse credit.

Alternative Options

If remortgaging isn’t the right fit, here are some other ways to access funds: 

• Second-charge mortgage*. A separate loan secured against your home, ideal if switching your main mortgage isn’t cost-effective.

• Equity release* (lifetime mortgage). For homeowners over 55, this lets you access funds without monthly repayments (repaid when you sell your home).

• Personal loans. Good for smaller amounts (less than £25,000) but typically have higher interest rates.

• Cash savings. If you have enough money available to pay for whatever purchase you want to make, you will avoid paying interest and other loan fees. 

*This service is offered by referral to a third party

What if You Own Your Property Outright?

If your home is mortgage-free, you can take out an unencumbered mortgage, borrowing against your property’s value. The process is similar to remortgaging but is technically a new mortgage application.

Click on this link to find out more about how unencumbered mortgages work and what’s involved.