What Is Equity Release Through Remortgaging

Home equity is the difference between your property's current market value and the outstanding mortgage balance. For example, if your home is worth £300,000 and you have £150,000 left to pay on your mortgage, you have £150,000 in equity. Remortgaging to release equity means taking out a new, larger mortgage and receiving the difference between the new and old mortgage amounts as cash.

The process differs from other equity release products like lifetime mortgages or home reversion plans, which are typically aimed at older homeowners. With a remortgage, you're simply replacing your existing mortgage with a new one on different terms, potentially with the same or a different lender. This option is available to homeowners of various ages, provided they meet the lender's criteria for income and credit worthiness.

The Step-by-Step Remortgage Process

The equity release remortgage process typically follows several key stages. First, you'll need to determine how much equity you have by getting a current valuation of your property and checking your remaining mortgage balance. Next, decide how much equity you want to release, keeping in mind that most lenders cap this at a percentage of your home's value.

Once you've decided on an amount, you'll need to research remortgage deals or consult with a mortgage broker who can help identify suitable options. After selecting a lender, you'll submit an application, which will trigger various checks including a property valuation and affordability assessment. If approved, your solicitor will handle the legal work, paying off your existing mortgage and transferring the equity release funds to you. The entire process typically takes between 4-8 weeks, depending on complexity and the lenders involved.

It's important to note that remortgaging will reset your mortgage term, potentially extending the period over which you'll be making payments. This is a significant consideration when calculating the long-term cost of accessing your equity through this method.

Provider Comparison For Equity Release Remortgages

When considering lenders for an equity release remortgage, several major providers offer competitive packages with varying terms and benefits. Nationwide Building Society offers remortgaging options with loan-to-value ratios of up to 85%, meaning you can borrow up to 85% of your property's value. Their rates are often competitive for those with good credit histories.

HSBC provides flexible remortgaging packages that allow for additional borrowing, with options for both fixed and variable rate products. They typically offer free valuations and legal work for remortgage customers. Meanwhile, Barclays has a range of remortgage products with varying terms, including options for those looking to release equity for home improvements or debt consolidation.

For those seeking specialized advice, Habito offers a digital mortgage broker service that compares options across numerous lenders. Their platform can help identify the most cost-effective remortgaging options based on your specific equity release needs. Similarly, Trussle provides free mortgage advice and helps customers find suitable remortgage deals from a panel of lenders.

Benefits and Drawbacks of Equity Release Remortgaging

Remortgaging to release equity offers several significant benefits. It provides access to potentially large sums of money without selling your home, which can be useful for major expenses like home improvements, debt consolidation, or helping family members. Interest rates are typically lower than personal loans or credit cards, making it a cost-effective borrowing option. Additionally, if property values have increased since you took out your original mortgage, you might benefit from a lower loan-to-value ratio, potentially accessing better interest rates.

However, there are important drawbacks to consider. Increasing your mortgage means extending your debt, which could result in paying more interest over the long term. Your monthly payments might increase if you borrow more or if interest rates have risen since your original mortgage. There are also costs associated with remortgaging, including arrangement fees, valuation fees, and legal costs, which can add up to several thousand pounds. Most critically, increasing your mortgage puts more of your home at risk if you can't keep up with payments. MoneyHelper, a service backed by the government, offers impartial advice on the implications of remortgaging.

Cost Considerations When Remortgaging

Understanding the full cost implications is crucial when considering an equity release remortgage. The primary expense is the interest charged on the increased loan amount. For example, borrowing an additional £50,000 at 4% interest over 20 years would cost approximately £73,000 in total, including interest payments. This represents a significant long-term commitment that needs careful consideration.

Beyond interest, remortgaging involves several upfront costs. Product fees (also called arrangement fees) typically range from £0-£1,500 depending on the lender and product. Valuation fees can cost between £200-£500, though some lenders offer free valuations as part of their remortgage package. Legal fees generally range from £300-£1,000, with some lenders offering free legal work for straightforward remortgages.

Early repayment charges on your existing mortgage could also apply if you're still within a fixed or discounted rate period. These can be substantial, sometimes 2-5% of the outstanding mortgage balance. Using a mortgage broker like L&C Mortgages can help identify deals that minimize these costs while meeting your equity release needs. Some brokers offer fee-free services, earning commission from lenders instead of charging customers directly.

Conclusion

Remortgaging to release equity can be an effective way to access the value tied up in your property, but it requires careful consideration of your long-term financial situation. Before proceeding, evaluate whether you can comfortably afford the new mortgage payments, consider how long you plan to stay in your property, and compare the total cost against alternative borrowing options. MoneySavingExpert provides resources to compare different financial products that might better suit your needs.

For many homeowners, consulting with an independent mortgage advisor or financial planner is a sensible step before making a decision. These professionals can provide personalized advice based on your specific circumstances and help you navigate the complex options available. Remember that while releasing equity can provide solutions to immediate financial needs, it's ultimately a long-term financial commitment that will impact your future financial flexibility and security.

Citations

This content was written by AI and reviewed by a human for quality and compliance.