When I Remortgage Can I Release Equity? Question Answered

When I remortgage, can I release equity?

This is a common question, especially among people living in their first home. We’ve answered this question and related questions below for a full understanding.

What is home equity?

Home equity refers to the value of a property that the homeowner owns outright. You can work out your amount of home equity by uncovering the property’s current market value and subtracting all debt secured against the property. 

For the majority of people, this will simply involve subtracting their existing mortgage balance away from the property’s current market value. But if you have other secured loans on the property, these debts will also have to be subtracted.

For example, if you own a £150,000 property with an outstanding mortgage of £50,000, you have 66.66% home equity, which in this case is equivalent to £100,000. 

What is remortgaging and how does it work?

Remortgaging is when you swap your current mortgage deal to a different deal, either with the same lender or a different one. Most of the time, people remortgage to secure a lower interest rate and save money each month. 

But in times of soaring inflation, homeowners might swap to a higher interest rate on a fixed term because they anticipate that mortgage interest rates will continue to rise beyond the rate they are agreeing to. So this is expected to save them money as well. 

What is releasing equity?

Releasing equity is when you take out a loan which is secured by your home equity. You may decide to use your equity to secure a loan so you can borrow more than what is available through unsecured lending – and to secure a more competitive interest rate. 

But your property is at risk of foreclosure if you don’t repay! 

In the example earlier, the homeowner had £100,000 home equity in their £150,000 property. A secured loan provider may allow the homeowner to take out a home equity loan valued up to 80% (£80,000) of their home equity, depending on if they meet other criteria and credit checks.

The new loan will be separate from the outstanding £50,000 mortgage, even if it was provided by the same bank that provides the mortgage. Therefore there are now two monthly repayments instead of just the mortgage repayments.  

Can I remortgage to release equity?

Yes, it’s possible to remortgage and release equity at the same time. Instead of taking out a second lien of credit against their home, some people decide to remortgage and simultaneously increase the size of their mortgage, providing they have sufficient home equity to do this. 

Why do people remortgage to release equity?

The equity you release by remortgaging can be put towards any purpose or project of your choosing. Some of the most common reasons people release equity by extending their mortgage are:

1. To make home improvements
2. To buy another property
3. To make other investments
4. To buy a new car
5. To pay for private education or medical costs

How do I remortgage to release equity in my property?

To remortgage and simultaneously release equity, you simply have to apply to the mortgage provider and ask to remortgage and borrow additional money.  

You should be suitable for this if you have sufficient equity in the property. But keep in mind, you won’t be able to borrow an amount equivalent to all your equity. You’ll still need to keep equity in the property in the same way you put down a deposit when purchasing a property. 

Most lenders cap the amount you can borrow at around 80% of your home equity, but you will still need to prove you can afford the new and higher mortgage repayments, and you’ll also be subject to another credit check. 

Do you have to stay with your current lender?

No, you can remortgage with your current lender or choose a different one. This is also true when you’re remortgaging to release equity. 

There can sometimes be a benefit in sticking with your current mortgage provider. They may not ask you to pay an early repayment charge on the first mortgage when you remortgage. This should be factored into your decision when considering your remortgaging options. 

How easy is it to remortgage to release equity?

Remortgaging to release equity is relatively straightforward if you have built up sufficient equity by paying your mortgage for a long time. 

But the lender will need to assess your finances and your credit file before making a decision. You might want to speak with a mortgage broker for personalised support. 

How long does it take to release equity through remortgaging?

The process of remortgaging to release equity can take between one and two months on average. 

So it’s important to give yourself time before you need the additional borrowing, especially if it’s going towards another time-sensitive property purchase. 

Alternatives to remortgaging to release equity

A secured loan can also be used to release equity. These loans can be called different names, including:

1. Second charge mortgage
2. Home equity loans
3. Home equity lines of credit
4. Homeowner loans
5. Home improvement loans

When I remortgage can I release equity? (Quick recap)

Yes, it’s possible to release equity at the same time as remortgaging, meaning you don’t always have to use a home equity loan or equivalent to borrow against your home equity. But you should consider all borrowing options before proceeding.