At the start of your mortgage, your lender owns most of your home. But over time you’ll own more of it yourself. As that happens you may choose to release some of your equity to spend on other things.
In this article, we’ll look at what you need to know before you remortgage to release equity from your home.
What’s the Equity in Your Home?
As you pay off your mortgage, your share of the equity in your home will grow. To work out how much equity you have in your home:
1) Get a valuation of your property from an estate agent or from several agents to get an average figure.
2) Check the size of your outstanding mortgage. This will be on your last mortgage statement or you can speak to your lender to get a more accurate estimate.
3) Work out how much equity you have by taking your outstanding mortgage balance off the estimated value of your home.
When to Consider Remortgaging to Release Equity
When is the right time to remortgage to release equity?
This depends on your individual circumstances, but you’ve got to have made regular mortgage payments over time to build up a significant amount of equity.
The other factor that can increase the equity in your home is if the value of your house has increased as property prices have risen. Combined with regular mortgage payments, an increase in house prices can boost your equity.
Should You Release Equity from Your Home?
Whilst it’s your choice how to use the equity in your home, you’ve got to weigh up why you want to turn some of it into cash vs the impacts of remortgaging.
The typical reasons why people release equity are to pay for other areas of their life.
This could include paying for higher education, funding home improvements or helping children buy a home with a deposit.
Alongside these reasons, you also need to consider the implications of remortgaging:
Firstly, check what the overall size of your new mortgage will be. Depending on how much extra money you borrow and the value of your home this could change the Loan to Value (LTV) of your mortgage.
As mortgage interest rates are based on the LTV, the interest you pay could increase along with your monthly mortgage payments.
Finally, remember to take account of remortgaging fees. Some lenders offer fee-free mortgages, however many of them have extra costs you’ll need to pay on top of your mortgage payments.
How to Get Advice on Remortgaging
An independent mortgage advisor can talk you through your options before you remortgage.
They will review your current mortgage and finances, look for suitable new mortgage products and explain the costs and benefits of remortgaging.
Please Note: As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments.
If you would like to speak to us about remortgaging or reviewing your existing mortgage, please email us email@example.com.