When you remortgage to release equity, you take a larger mortgage and receive the difference in cash, after costs. You keep your home, but you owe more against it. The starting question is how much you need and what it will cost to borrow that amount.
Suppose you want £40,000 to extend your kitchen. Your house may have risen in value since you bought it. However, a higher valuation alone cannot tell you whether switching mortgages makes sense. Your existing rate, your household budget and the date your deal ends all matter.
How does a remortgage to release equity work?
First, estimate your equity by subtracting your outstanding mortgage from your home’s current value. For example, a £400,000 house with a £200,000 mortgage has £200,000 of equity. That figure describes the share you own outright at that valuation. It does not tell you how much a lender will offer.
Follow the £40,000 through the figures
In the kitchen example, a new £240,000 mortgage pays off the existing £200,000 balance. That leaves £40,000 before fees and other charges. As a result, your remaining equity falls to £160,000, assuming the property value stays the same.
Lenders also look at loan-to-value, often shortened to LTV. Divide the mortgage balance by the property value to find yours. In this example, the original loan sits at 50% LTV. After the extra borrowing, it rises to 60%.
However, suppose the lender values the same home at £375,000. The £240,000 loan would take your LTV to 64%. As a result, a different valuation can change your options even if your income and kitchen quote stay the same.
How much could you borrow against your home?
A lender considers your income, spending, credit commitments and reason for borrowing. It also considers the property and the size of the proposed loan. For example, neighbours with identical homes may receive different offers because one household pays for childcare and a car loan.
Start with the amount your plans require. For building work, separate the written quote from optional extras. Then decide how much of your savings you can use while keeping a buffer for unexpected bills. In practice, a smaller loan might finish the work without using all the borrowing a lender offers.
Budget for releasing equity when remortgaging
Take an ordinary month and write down what remains after essential bills, travel, food and other debts. Next, repeat the exercise for a difficult month. Include an annual bill or a period of lower earnings if either affects your household.
Compare that spare cash with the proposed increase in repayments. If the numbers only work when everything goes to plan, ask for a quote on a smaller amount. You can also price doing the project in stages. Both figures are worth seeing before you commit.
Switch lender, borrow more or keep your current deal?
If you want to remortgage to release equity, compare the cost across the whole mortgage. A new lender sets terms for the existing balance as well as the extra money. By contrast, your current lender may offer a separate loan for the additional amount.
- Remortgage with a new lender. You take out one larger mortgage. Compare the cost of moving your existing borrowing as well as the price of the extra funds.
- Ask about a further advance. Your current lender may let you borrow more alongside the existing loan. For example, the extra part can have its own rate, term and end date.
- Consider a second charge mortgage. This is a separate loan secured against the same home. You make two sets of repayments. Check both sets of costs with an adviser before choosing this route.
For example, imagine most of your mortgage still benefits from a low fixed rate. Moving that whole balance to raise a smaller sum could prove expensive. Equally, a further advance with a higher rate or larger fee may offer little benefit. Ask for figures for both routes over the same period.
Another option is to wait, save more or reduce the project scope. For a smaller job, compare any suitable unsecured borrowing as well. MoneyHelper explains how further advances work and what to ask your lender.
What will the extra borrowing actually cost?
Put two mortgage illustrations side by side. First, compare monthly repayments, fees and any early repayment charge on your existing deal. Then compare what you would still owe at the same future date. In particular, a lower monthly payment can disguise a longer repayment period.
What changing the term does to £40,000
Take a separate £40,000 repayment loan at an illustrative 5% throughout, with no fees. Over ten years, the payment is about £424 a month and total interest is about £10,900. Over twenty years, it is about £264 a month, but total interest rises to about £23,400.
The longer term saves roughly £160 a month in this example. However, it adds around £12,440 in interest. These figures illustrate the effect of the term only. Your offer will specify its own rates, fees and repayment schedule.
Also check how you would pay an arrangement fee. Adding a £999 fee to the example mortgage increases the balance from £240,000 to £240,999. As a result, you pay interest on the fee too. MoneyHelper’s remortgaging guide can help you compare switching costs.
If you are remortgaging to release equity, ask for the figures in writing. For example, request the balance left after two years on each illustration. Also note which fees you pay upfront and which you add to the loan. That way, you can explain the difference in pounds even if the deals have different terms.
When does it make sense to review the timing?
Find your current deal’s end date and ask the lender for the cost of leaving on a specific date. Then compare that figure with the cost of waiting. If your early repayment charge falls soon, a contractor’s payment schedule could make a difference to your decision.
Before you remortgage to release equity, ask when you could realistically receive the money. The lender may need documents or a valuation, and legal work can take time. For that reason, avoid promising a builder a payment date on the strength of an initial estimate.
What if the money is for debts or later-life spending?
Think carefully before securing other debts against your home. Moving credit card debt into a mortgage puts your home at risk if you miss repayments. Spreading a debt over more years can also increase the total interest, even if the monthly payment falls.
If repayments already stretch your budget, speak to a free debt adviser before borrowing more. MoneyHelper’s debt consolidation guide explains what to consider.
Later-life equity release is a different decision. For example, a lifetime mortgage commonly allows interest to build up and can reduce what you leave to your family. If that is what you mean by releasing equity, start with MoneyHelper’s guide to equity release and seek specialist advice.
What to prepare before speaking to an adviser
Gather the figures that would let someone compare your options without guessing. In particular, bring a recent statement rather than relying on the balance you remember from last year.
- Your mortgage balance, current rate, remaining term and deal end date.
- An early repayment charge for the date you have in mind.
- Your estimated property value, the amount you want and its intended use.
- Recent income details, regular commitments and the monthly payment you could manage.
Finally, write down the question that matters most to you. For example, would you rather finish the project sooner or protect a low rate for another year? Greenacre’s remortgage advisers can use those priorities to explain the trade-offs.
Frequently asked questions
How do I remortgage to release equity?
Check your mortgage balance, estimate your home’s value and decide how much extra you need. Then compare a larger remortgage with a further advance from your current lender. A lender checks affordability and the property before making an offer.
How much equity do I need to remortgage?
There is no single figure for every homeowner. Lenders set their own loan-to-value limits and assess your income, commitments and reason for borrowing. For example, a £240,000 loan on a £400,000 home has a 60% loan-to-value ratio.
How soon can you remortgage to release equity?
Timing depends on lender criteria, your existing deal and the checks your application needs. Ask for your early repayment charge and compare the cost of switching now with waiting. Your adviser can help you plan around any payment deadline.
For a broader overview of eligibility, alternatives and potential risks, read Can I remortgage to release equity?
Compare your borrowing options
Your home may be repossessed if you do not keep up repayments on your mortgage.
If you plan to remortgage to release equity, bring your current statement and the amount you want to raise. Ask Greenacre to compare your options, including the cost of keeping your existing deal.