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Remortgaging to release equity can be a good way to gain access to money that is tied up in your house, so long as it’s financially viable. Find out more below.
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Published January 30th 2024
Updated on November 18th 2024
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If your mortgage term is coming to an end, and you need access to funds you don’t have readily available in savings, you may be able to remortgage to borrow a larger amount through your mortgage. Although this decision shouldn’t be taken lightly, especially with the recent increases to the cost of living, as long as it’s financially viable, it can be a good way to gain access to money that is tied up in your house, known as equity.
In this article:
Releasing equity through remortgaging your home, basically means, increasing the size of your mortgage to access part of your property’s value as a cash lump sum. When you do this, you will have to apply for a remortgage where you would switch to a new deal and add the additional loan value to your mortgage. This means your mortgage will increase and, in most cases, so will your monthly repayments.
When you remortgage, you will need to appoint a conveyancer to complete the legal work. Read our articles for more information on how remortgaging works and the remortgage conveyancing process.
When you remortgage, if you have built up equity in your house, you can consider increasing your mortgage to gain access to this money. When you do this, the cash is tax free and is yours to spend on pretty much on whatever you need.
See below the 5 most common ways to spend the money released when remortgaging:
Whether you want to build a loft extension, add a conservatory, reconfigure your rooms or get a new bathroom, finding spare cash to make home improvements can be challenging. Borrowing an additional loan through your mortgage can help pay for these larger home projects. Using your mortgage to renovate or make home improvements is a sensible way to use this cash, as completing the work could also add value to your home.
If you have paid off a good chunk of your mortgage, you may be able to remortgage and release equity to buy another home, either for the deposit, or to pay for it outright. This could be to buy an investment property or even that holiday home that you’ve always dreamed of. Of course, if you do this, your monthly mortgage repayments will increase and you may even have a second mortgage on top of it to pay, so you need to make sure it’s affordable. Using released equity to buy a second property can be an effective way to invest money that would otherwise be tied up, however it’s important to seek advice from a financial adviser, to make sure it will be feasible. Find out more about buying a second home.
In more financially challenging times, it can be hard to find spare cash when something goes wrong, and yet, something does always seem to go wrong. Although remortgaging to supplement your income isn’t a permanent solution and shouldn’t be relied upon, having the cash in your bank may give you the peace of mind that you have a bit of spare money accessible in case of emergencies.
A fairly common reason to release equity from a mortgage, is to help out a child. When it comes to ‘bank of mum and dad’ you’re forever paying out for your children, whether it’s a new pair of trainers, the latest games console or bigger gifts such as buying them a car, paying for their student loan, or even helping to get a deposit for their own house. When you remortgage to access money tied up in your house, you can do any of these, just be sure they say thank you!
If you decided to buy a house with your other half, before getting hitched, then remortgaging to release equity to pay for a wedding is something you can consider. Weddings can be a huge expense, even when you’re trying to keep the costs down. Having the money in savings is hard to achieve, especially when it’s likely you’ve already put most, if not all, of the savings you had towards your house deposit. Getting the lump sum of cash in your bank account can be spent towards your wedding and you can rely less on using things such as loans or credit cards to pay for the ever-mounting costs.
If you’re considering increasing your mortgage when you remortgage, it’s important to make sure that you can afford to do so. The risks involved are very high, as ultimately, if you can’t keep up with your mortgage repayments you risk losing your house. There are some factors you should consider before jumping in:
Speak to a financial adviser – first and foremost you should speak to a financial or mortgage adviser. They are qualified to give you advice using your specific circumstances by considering your income and outgoings. They understand mortgage rates, the costs involved and can help you to decide if it will be a financially viable option for you.
Compare interest rates – the interest rates for mortgages may seem lower than a standard bank loan, however as mortgages are paid back over a longer term, the actual amount you repay will be higher.
Factor in remortgaging fees – there are fees costs involved with remortgaging, if you’re at the end of a fixed term mortgage contract, you will have fees to arrange a new deal. Alternatively, if you are part way through a mortgage contract, and you are able to leave, not only will you have the arrangement fees, but you will also face an early repayment charge which is usually between 1% and 5% of your remaining mortgage amount.
Remortgaging a property that has spray foam insulation can come with challenges. Recently, many mortgage lenders are having concerns about spray foam because of its potential to impact ventilation and roof structure.
This means that having spray foam insulation could limit your remortgaging options or require additional checks to satisfy lenders. To avoid complications, we recommend working with a surveyor who can assess the condition of the spray foam and provide a report that reassures both you and potential lenders.
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