Remortgaging to release equity: how does it work?

What does remortgaging to release equity mean?

Remortgaging to release equity means increasing the amount you borrow against your home to access some of the money tied up in it.

How much you can release will depend on things like your property’s value, your current mortgage balance and what your lender is willing to offer.

What is equity?

Equity is the difference between your property’s market value and the amount you still owe on your mortgage. The more of your mortgage you pay off, the more equity you’ll generally have, although changes in your property’s value can also affect this.

For example, if your home is worth £250,000 and you owe £200,000 on your mortgage, you have £50,000 in equity. That’s 20% of your property’s value.

If your mortgage balance falls to £195,000 and your home’s value stays the same, the proportion of your home you own outright increases to £55,000, or 22%.

How much equity do you have in your home?

To work out how much equity you have, subtract your outstanding mortgage balance from your property’s current market value.

This would look something like: your home is worth £250,000 and you owe £180,000 on your mortgage, which means you have £70,000 in equity.

Remember, this is your total equity, not necessarily the amount you’ll be able to release. Your lender will look at your finances and other factors to decide whether to offer you a remortgage.

How much equity do I need to remortgage to raise capital?

Ideally, you’ll have a decent amount of equity in your home before remortgaging to release some of it. This can help you avoid pushing your loan to value (LTV) too high, which could affect the mortgage deals available to you.

How much equity you’ll need will depend on your lender, your money situation and how much you want to borrow.

How does releasing equity affect your mortgage?

When you release equity, your loan to value (LTV) increases because you’re borrowing more against your home.

For example, if your mortgage currently has a 70% LTV and you borrow more, it could rise to 90%. A higher LTV can mean higher interest rates and monthly repayments, so you should consider how this might affect your budget.

Find out more about how equity can impact your next home purchase.

What can you use released equity for?

Releasing equity can give you access to money tied up in your home, which you could use for a range of things, such as:

• Home improvements: From updating your kitchen to building an extension, you could use the money to improve your home.

• Consolidating debt: You might be able to use the money to pay off existing debts, although securing debt against your home does come with some risk.

• Helping family: You could use some of the money to help a family member with a major expense, like a house deposit.

• Major purchases: You might use the funds for a significant purchase, like buying a car.

Whatever you’re planning, remember that releasing equity means borrowing more against your home. Your mortgage balance and repayments could increase and your home could be at risk if you can’t keep up with them.

The pros and cons of remortgaging to release equity

Remortgaging to release equity can give you more financial flexibility, but it’s important to weigh up the benefits against the potential risks before deciding if it’s right for you.

The pros of remortgaging to release equity

• Access to extra funds: You can unlock some money tied up in your home without having to sell it.

• Combining several debt repayments into one mortgage payment: If you use the money to consolidate existing debts, you could bring several repayments together into one.

However, your home will be securing that debt, and you could pay more interest overall if you spread the repayments over a longer period.

• Investing in your property: Using the money for home improvements could make your home more comfortable and potentially increase its value, although it’s not always guaranteed.

The cons of remortgaging to release equity

• Higher monthly repayments: Borrowing more against your home could increase your monthly mortgage payments.

• More interest to pay: Increasing your mortgage balance or extending its term could mean paying more interest over time.

• Less equity in your home: You’ll owe more on your mortgage, reducing the share of your property you own outright.

• Your home is at risk: If you can’t keep up with your mortgage repayments, your home could be repossessed.

Alternatives to remortgaging to raise capital

Remortgaging isn’t the only way to borrow extra money.

You could ask your current lender to lend you more, take out a second mortgage or apply for a personal loan. You could even use savings instead of borrowing more.

If you’re aged 55 or over, you could also consider equity release through a lifetime mortgage. This lets you access money tied up on your home, with the loan usually repaid when you die or move into long-term care. Interest builds up over time, so it’s important to understand the costs before making a decision.

Each option has its own costs and risks, so it’s a good idea to compare them and see what works best for you.

Get prepared by talking to an adviser

Before you decide to remortgage and release equity, look at the costs, how your monthly repayments might change and whether borrowing more is right for you.

If you’re unsure if releasing equity is right for you, speak to a mortgage adviser who can talk you through your options and help you decide what to do next.