How To Use Remortgaging to Release Equity
Many homeowners in the UK are taking advantage of low mortgage rates and through remortgaging, are finding ways to release equity from their homes. According to Remortgage Quotes Online, you can switch your standard variable rate (SVR) from around 4-5% APR to a fixed remortgage rate of 1.3-1.7% during the introductory offer.
The result of record low mortgage rates means that you can potentially borrow more money against your home, whilst keeping your mortgage payments each month roughly the same.
Releasing money through remortgaging is mostly used for:
- Home improvements
- Debt consolidation
- Christmas shopping and presents
- Family holidays
- Gifting to other family members
How Can You Release Equity Through Remortgaging?
To be effective, you will need to have the following:
- Good amount of equity in your home
- Good/fair credit rating
- Good affordability to remortgage
- Stable income (not recent fall)
In order to remortgage, you will need to meet the checks from the mortgage provider, which have become more stringent over the years. They want to seem a strong affordability, which means that your salary is stable or going up (not falling drastically) and your expenses are not going beyond your means.
If you have a poor credit rating since getting your original mortgage, this can impact your chances of getting a new mortgage deal – or you could be stuck on your standard variable rate.
Naturally, to release money from your home, you will need some equity in it, which is achieved by paying off your mortgage on time for several years.
We review some of the options below:
Release Money When You Remortgage
When applying for a remortgage, you can ask to release or borrow money too – and the payments will just be adjusted to your existing mortgage loan. You may have heard the phrase or your parents complain “Well, I will need to remortgage the house for that one.” And this is exactly the case.
The more equity you have in your home the better, otherwise releasing through a remortgage with little equity will just increase your monthly payments.
Second Charge Loan or Advance
You can get a ‘top-up’ when you remortgage, also known as an ‘advance’ or simply a second charge loan.
In this instance, you are getting an additional loan to your mortgage and this will mean having two loans on different terms. One could be fixed for 5 years and the other could be variable for 2 years. You cannot borrow as much with the second loan as with the first and the amount you can borrow is based on your affordability. Failing to keep up with repayments can have a negative impact on your credit history and cause you to lose equity in your home.
This is only available to homeowners over the age of 55 and this allows you to release equity from your home, and pay off your mortgage at the same time. This is becoming an increasingly popular for the ageing population in the UK and is currently used by around 60,000 households per year, who borrow on average around £80,000.
Through equity release, you are able to receive one large sum amount, upfront, which is completely tax-free. In exchange, you simply give up some equity in your home, which is claimed by the lender when you die or go into long term care. There are monthly interest repayments or you can choose to have an interest only or rolled up interest added to the full outstanding amount. You also benefit from the house increasing in value, which is then used to pay off your outstanding debt.
You can typically borrow around around 25% to 60% of your property’s value through a lifetime mortgage, which is a type of equity release product designed to last your lifetime. Or if you want to borrow money, you can use a home reversion scheme to borrow up to 80%, but this will mean physically selling of your home and you will not be able to benefit if it goes up in price in the future.