What is Equity Release Through Remortgaging?
When you remortgage to release equity, you're borrowing more than your current mortgage balance based on your property's value. The additional funds are released to you as cash. This differs from equity release products (which are typically for over-55s); with remortgaging, you take on a standard mortgage for the higher amount.
For example, if you owe £150,000 on a property worth £300,000, you have £150,000 equity. You might remortgage to £200,000, receiving £50,000 in cash while your new mortgage becomes £200,000.
Common Reasons for Releasing Equity
Popular uses include home improvements (potentially adding value to the property), debt consolidation (replacing expensive debts with lower mortgage rates), helping family members with deposits, funding major purchases, or business investment. The funds are yours to use as you choose.
Home improvements can make sense if they add value - though remember, not all improvements recover their cost in property value. Debt consolidation can simplify finances but turns unsecured debt into secured debt against your home.
How Much Equity Can You Release?
The amount depends on your property value and how much lenders will offer based on LTV limits and affordability. Most lenders cap remortgages at 85-90% LTV. Using the earlier example, on a £300,000 property at 85% LTV, you could borrow up to £255,000 - releasing £105,000 if you owed £150,000.
Affordability limits also apply. Even if LTV allows significant borrowing, you must demonstrate ability to afford the higher monthly payments. Releasing equity increases your mortgage balance and therefore your payments.
Cost Considerations
Increasing your mortgage means higher monthly payments and more interest paid over time. If you're adding £50,000 at 4.5% over 25 years, you'd pay approximately £28,000 in interest on that additional borrowing. Consider whether your intended use justifies this cost.
Compare alternatives: personal loans for smaller amounts might be cheaper short-term even with higher rates. Using savings instead of borrowing avoids interest entirely. Think carefully about whether equity release is the most cost-effective approach.
Important Warnings
Equity release increases borrowing secured against your home. If you can't keep up payments, your home could be repossessed. Be particularly cautious about releasing equity to fund lifestyle expenses or risky investments.
If consolidating debts, be aware you're turning short-term unsecured debt into long-term secured debt. You might pay less monthly but more overall. Our brokers can help you understand the full implications.