Remortgaging to Release Equity from Your Home

12 Sep 2023

Intelligent property investors often turn to remortgaging as a strategic financial move to optimize their real estate investments. This approach is driven by several key reasons, all geared towards maximizing returns and seizing opportunities in the property market. This approach is rooted in practical reasons aimed at boosting returns and capitalizing on property market opportunities. In this post, we'll explore the main reasons why savvy property investors opt for remortgaging, highlighting how it can benefit their investment portfolios.

Why remortgage?

Releasing Equity: Releasing equity through remortgaging can provide funds for various purposes, such as investing in other properties, starting a business, or covering major expenses like education or medical bills.

Asset Purchase: Some individuals may remortgage their home to release equity and use the funds to purchase other assets, such as investment properties. This is the typical approach individuals use to build their wealth through real estate and what we will explore in the remaining questions.

Lower Interest Rates: One of the most common reasons for remortgaging is to secure a lower interest rate. If market interest rates have dropped since a person first took out their mortgage, they may choose to refinance to get a better rate. Lower interest rates can result in reduced monthly mortgage payments and long-term interest savings.

Reduced Monthly Payments: Some homeowners remortgage to extend the term of their mortgage. By doing so, they can spread the remaining balance over a longer period, which lowers their monthly payments. This can be beneficial if they are facing financial difficulties or want to improve their cash flow.

Fixed-Rate to Variable-Rate (or Vice Versa): Homeowners may switch from a fixed-rate mortgage to a variable-rate mortgage (or vice versa) to align their mortgage with their financial goals and risk tolerance. Fixed-rate mortgages provide stability with constant payments, while variable-rate mortgages can offer lower initial rates but come with potential rate fluctuations.

Debt Consolidation: Some people use remortgaging as a means to consolidate high-interest debts, such as credit card debt or personal loans, into their mortgage. This can result in lower overall interest costs and simplified debt management.

Home Improvements: Remortgaging to access equity in their property allows homeowners to fund home improvement projects, such as renovations, extensions, or upgrades. This can increase the value of their home and enhance their living conditions.

Changing Loan Terms: Homeowners may choose to change the terms of their mortgage, such as switching from an interest-only mortgage to a repayment mortgage, or adjusting the duration of the loan to align with their financial goals and retirement plans.

Escape from High Fees or Restrictions: In some cases, homeowners may be dissatisfied with their current lender's fees or restrictions. They might remortgage to switch to a lender that offers more favorable terms and conditions.

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Beginner’s Breakdown: Remortgaging to Release Equity

Remortgaging to release equity is a financial strategy that allows homeowners to access the value tied up in their property. Here's how it works:

Understanding Equity: Equity is the difference between the current market value of your home and the outstanding balance on your mortgage. For example, if your home is worth $300,000, and you have a remaining mortgage balance of $150,000, you have $150,000 in equity ($300,000 - $150,000 = $150,000).

Remortgaging: Remortgaging, also known as refinancing, is the process of taking out a new mortgage on a property you already own, replacing your existing mortgage. This new mortgage can have different terms, interest rates, and possibly a different lender.

Releasing Equity: By remortgaging, you can borrow additional funds on top of what you owe on your existing mortgage. This borrowed amount is typically based on the equity you have in your home. For example, if you want to release $50,000 in equity, you might apply for a new mortgage of $200,000 (assuming your current mortgage is $150,000).

What are the steps involved in remortgaging?

Here's a step-by-step explanation:

1. Assess Your Current Equity: Determine how much equity you have in your property. This can be calculated by subtracting the current outstanding balance on your existing mortgage from the current market value of your home. For example, if your home is worth $300,000, and you owe $150,000 on your mortgage, you have $150,000 in equity.

2. Check Your Eligibility: Contact mortgage lenders or a financial advisor to assess your eligibility for a remortgage. Lenders will consider factors such as your credit score, income, and the loan-to-value ratio (LTV). LTV is the ratio of your mortgage balance to your property's current value.

3. Shop for Lenders: Compare offers from different lenders to find the best remortgage deal. Look at factors like interest rates, fees, and terms. It's crucial to find a lender and mortgage product that suits your financial situation and goals.

4. Apply for the Remortgage: Once you've selected a lender and mortgage product, you'll need to complete an application. You'll provide financial documentation, including proof of income and assets, to support your application.

5. Property Valuation: The lender will typically require a new valuation of your property to determine its current market value. This valuation helps them calculate the amount of equity you can release.

6. Offer and Approval: If your application is approved, the lender will make you an offer outlining the terms of the new mortgage, including the amount of equity you can release. Review this offer carefully to ensure it aligns with your goals.

7. Legal Process: You'll need to go through a legal process to complete the remortgage. This often involves solicitors or conveyancers who handle the paperwork, transfer of funds, and any necessary legal documentation.

8. Funds Disbursement: Once the legal process is complete, the lender will disburse the funds from the new mortgage. These funds can be used for various purposes, such as home improvements, investments, debt consolidation, or any other financial goals.

9. Repayment: Keep in mind that the newly borrowed funds are added to your mortgage balance, and you'll need to make regular mortgage payments on the increased amount. These payments can be fixed or variable, depending on the terms of the new mortgage.

10. Ongoing Mortgage: Your new mortgage terms, including interest rates and monthly payments, will be based on the remortgage deal you secured. Be sure to keep up with your mortgage payments to avoid any potential issues.

Remortgaging to release equity can be a useful financial strategy for accessing funds tied up in your property. However, it's essential to carefully consider the long-term implications and potential risks associated with taking on additional debt. Consulting with a property investment expert or mortgage expert is recommended to make an informed decision. Sign up for a free consultation with IP Global to learn more.

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How much equity can you release?

To calculate the approximate amount of equity you can release, you can use the following formula:

Equity Release Amount = (Current Property Value x LTV Ratio) - Outstanding Mortgage Balance

For example, if your property is worth $300,000, you have an outstanding mortgage balance of $150,000, and the lender allows an 80% LTV ratio, the calculation would be:

Equity Release Amount = ($300,000 x 0.80) - $150,000 = $240,000 - $150,000 = $90,000

In this scenario, you could potentially release $90,000 in equity.

Keep in mind that this is a simplified calculation, and the actual amount you can release may vary based on lender-specific criteria, creditworthiness, and other factors.

What should you consider before you release equity to remortgage?

Before releasing equity through remortgaging, carefully consider your financial goals, affordability, mortgage terms, and interest rates. Assess the fees and costs associated with the process, as well as your creditworthiness and market conditions. Understand potential tax implications and plan for the long term with a clear exit strategy.

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What are the alternatives to remortgaging?

Home Equity Loan (Second Charge Mortgage): This option allows homeowners to borrow against the equity in their property without refinancing their existing mortgage. It's a separate loan secured by the property and can be used for various purposes, including home improvements or debt consolidation. Interest rates are typically fixed, and repayment terms are set.

Equity Release Schemes: Equity release is a financial product designed for homeowners aged 55 and over. It allows them to release equity from their homes without making monthly repayments. The two main types are lifetime mortgages and home reversion plans. With lifetime mortgages, interest accrues and is typically repaid when the property is sold or the homeowner passes away. Home reversion plans involve selling a portion or all of the property to a provider in exchange for a lump sum or regular payments while retaining the right to live in the property.

Personal Loans: Personal loans are unsecured loans that can be used for various purposes, such as home improvements, debt consolidation, or other expenses. They are available to individuals with good credit and typically have fixed interest rates and set repayment terms. While interest rates may be higher than mortgage rates, personal loans don't require collateral.

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By leveraging the equity in your existing properties, you can seize opportunities in the property market, capitalize on favourable market conditions and secure lower interest rates and accelerate your wealth-building efforts. Most successful property investors remortgage to release equity for further property investment.

Whether it's better to remortgage or release equity depends on your specific financial situation. Each option has its advantages and disadvantages, and the choice should align with your needs and preferences. Here's a comparison to help you decide:


1. Lower Interest Rates: Upon reaching the end of a fixed-rate mortgage, typically lasting two to five years, you're automatically transitioned to your mortgage lender's variable rate, often resulting in higher interest payments. Remortgaging offers the opportunity to switch to a more favorable arrangement with lower interest rates and consequently reduced monthly obligations.

2. Change in Mortgage Terms: If you want to adjust the terms of your mortgage, such as switching from a variable rate to a fixed rate, or extending or shortening the loan term, remortgaging allows you to do so.

3. Refinancing Debt: If you have high-interest debts, you can consolidate them into your mortgage when you remortgage, potentially lowering your overall interest costs.

Releasing Equity:

1. Access to Cash: Releasing equity allows you to access a lump sum of cash without changing your existing mortgage terms. This can be useful for specific financial goals, such as home improvements or investments.

2. Retain Current Mortgage Terms: If you are satisfied with your current mortgage terms and interest rate, but still need funds, releasing equity lets you keep your existing mortgage intact.

3. Flexible Use of Funds: You can use the released equity for various purposes, from buying additional properties to covering major expenses or investments.

Lenders in the UK typically have maximum LTV ratios they are willing to work with. LTV is the ratio of your mortgage balance to your property's current value. A common maximum LTV ratio for remortgages is 85%. This means that you can remortgage up to 85% of your property's current value, leaving at least 15% equity in your home.

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