Remortgaging your home is the process of moving your mortgage from one lender, to another. But without moving home.
Releasing equity generally means accessing your home’s equity via a mortgage or loan.
But do you have to do both of these things together? and is remortgaging the same as releasing equity? Let’s find out…
What is equity?
Your equity is the amount of your home that you own outright.
It’s the part of your house that doesn’t belong to your mortgage lender.
Your equity starts with your initial deposit when you first bought your home. This will then grow (or occasionally shrink) in-line with property prices.
The percentage of equity also changes as you reduce your mortgage balance. With a repayment mortgage, your monthly payments chip away at the mortgage debt.
Over time this reduces the amount that you owe, turning it into more equity.
How do you calculate equity?
Equity can be calculated by deducting the amount you owe on your mortgage from the value of your home.
For example
£500,000 property value
£300,000 mortgage value
£200,000 home equity
LTV Calculator
This simple calculator will quickly work out your loan to value (LTV) percentage. Just enter the property value, or purchase price, and the mortgage amount you need.
What is remortgaging?
The process of remortgaging involves switching your mortgage from one lender, to another, but without moving home.
You would apply for a new mortgage, with a new lender, and then use this money to pay off the mortgage you have now. The most common reason for remortgaging is to change to a more competitive interest rate.
The reasons why people remortgage are extremely varied.
Better interest rate
The most common reason is to move to a better interest rate. When your fixed rate ends you will want to find another competitive deal. Sometimes this will mean going to a new lender.
More features
As time passes you may find that you want more from your mortgage. The ability to overpay or perhaps use surplus cash savings with an offset mortgage, to reduce your interest charges.
Consolidate debts
Remortgaging can allow you to consolidate unsecured debts like credit cards and personal loans into your main mortgage. This usually results in a reduction in monthly outgoings.
Home improvements
If you are building an extension or loft conversion, a remortgage could give you the opportunity to borrow the money needed at a competitive rate.
Change borrowers
Circumstances change and there may be a need to remove someone from the mortgage, or perhaps add someone new. A transfer of equity remortgage will allow this to happen.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
What do we mean by 'releasing equity'?
Releasing equity is a term used when you borrow more money against your home. It is also referred to as capital raising, both have the same meaning.
You apply for a larger mortgage to tap in to some of the equity in your home. This puts cash in your pocket, but means your mortgage debt is higher by the same amount.
QUICK EXAMPLE
If you own a property that's worth £500,000 and have a mortgage of £300,000, then your equity is £200,000.
To release £50,000 of the equity you would apply for a £350,000 remortgage.
£300,000 of this is used to pay of the old mortgage, and £50,000 is put in to your bank account.
Your equity is now £150,000.
Does remortgaging always mean releasing equity?
No.
There is no requirement to borrow more money when you remortgage, although it is a popular way of capital raising.
Remortgaging involves applying for a new mortgage, with a new lender.
So, it doesn't take much effort to ask for a bit more.
How much can you borrow?
The maximum amount you can borrow will be limited by your provable income, your affordability and your equity.
You will always need enough money to pay off the mortgage you already have.
But, when you apply for a remortgage you could:
Borrow less money
Borrow more money
Borrow the same amount of money
Is remortgaging the same as releasing equity?
No, remortgaging is not the same as releasing equity.
You can remortgage without releasing equity and you can release equity without remortgaging.
But remortgaging is the most popular option for people who do want to capital raise and release some equity.
How to remortgage to release equity
Once you have decided to borrow more money it's time to apply for a remortgage.
Now, there are a few different ways that you could borrow this extra money, but remortgaging is normally the cheapest.
Like any mortgage, you need to apply to a lender that will:
- Accept you as a borrower
- Be happy with your property
- Approve the extra borrowing
- Offer a competitive deal
Depending on your situation, you may find it easier to engage the help of an independent mortgage broker. Not only will they have access to lots of lenders, they can assist borrowers with more complex employment situations and those that have bad credit.
APPLY FOR THE NEW MORTGAGE
Once you've decided on a lender then it's time to formally apply for the capital raising remortgage. Your application will be for the total amount of money needed (current mortgage plus the extra). All lenders will want to see proof of your income and expenditure, to check your affordability. Some will ask some questions about why you need the extra money.
PROPERTY VALUATION
The lender will instruct a surveyor to carry out a mortgage valuation. This is to ensure your home is the type of property that they accept and confirm it's current value.
MORTGAGE OFFER
Once the lender has completed all of it's checks, it will issue your mortgage offer. This document outlines all of the mortgage conditions, including how much you are borrowing and on what terms.
COMPLETION
This is the last step, and completion is when the mortgage goes 'live'. Your solicitor will receive the new mortgage money and will use this to fully pay off your old mortgage. Any surplus will be sent to you.
The costs of remortgaging
Although some lenders do provide financial incentives to choose their deals, remortgaging is rarely cost free.
It's important to be aware of additional fees and charges, some of these you may have to pay upfront.
Your mortgage broker will be able to confirm the specific costs.
Look out for:
- Arrangement fees
- Valuation fees
- Broker fees
- Early repayment charges
- Legal fees
Alternatives
There are a few different ways you can borrow money to access your home equity.
What's right for you may not be right for someone else. We suggest you consult with a mortgage broker to get expert, personalised advice.
Here are the different mortgages and secured loans:
Remortgage
A first charge remortgage is what most people choose when they need to borrow extra money. They are readily available and offer very competitive terms and interest rates.
Further advance
If you can't remortgage to a new lender then it may be possible to apply for a further advance with your current lender. This is a new mortgage loan taken out in addition to the one you already have.
Secured loan
When a further advance is not an option then maybe a secured loan, or second charge mortgage, can help. It's very similar to a further advance, but you borrow the money from a new lender, without affecting the main mortgage.
Bridging finance
Bridging loans are generally associated with commercial finance or helping with a broken property chain. In fact bridging loans are available to anyone who owns a property. They are quite expensive, but are quick to arrange and very flexible.
Using a mortgage broker
Mortgage brokers are experts in borrowing money and solving problems.
Don't think that your situation is not acceptable to a lender, until you have spoken with a broker.
There are many, many lenders in the mortgage market that are not household names. These are specialist lenders, many of whom only work with regulated mortgage brokers.
Your broker can help you choose between different loan options, explaining how each choice compares to the next.
There are likely to be a few strategies and tricks that you aren't aware of, that a broker uses everyday.
Let Respect Mortgages match you with an experienced independent mortgage broker.
Call us on 0330 030 5050 to get started.
Remortgaging early generally means switching lender before your special interest rate has finished, along with any early repayment charges.
You are able to remortgage at any point. But doing this at the wrong time is likely to incur high ERC fees.
You will find more useful information in our article: "Can I remortgage early?"
There's no property chain with a remortgage, just the lender and solicitor.
And you.
You won’t need a cash deposit to remortgage as the lender will look at your equity to determine the LTV. But a remortgage is a good time to use any spare savings to reduce your mortgage which will then lower the mortgage repayments.
Most people borrow extra money for home improvements or to consolidate debts.
But you are able to release some capital to fund other types of projects as well. Each lender has their own list of approved reasons.
A remortgage with the same lender refers to a Mortgage Product Transfer. Where you change interest rate but stay with the same lender.
It's not a phrase that we use, as we feel it's confusing.
A product transfer is very simple and doesn't take that long to complete. But you cannot borrow more money with a product transfer.
Secured loans have their place, but they are generally a last resort option.
Although there are plenty of lenders, and their lending terms are flexible, they can be quite expensive.
You will find more useful information in our article: "Second charge vs further advance"
