Is remortgaging to release equity from your home right for you?

Remortgaging to release equity means you can free up cash you’ve built up in your home. But how do you do it, how much does it cost and what are the pros and cons? We take a look

Rebecca Gamble Consumer Journalist

What does remortgaging to release equity mean?

When you remortgage, you take out a new mortgage deal on the same property. You may switch to a different lender or get a new mortgage with your current lender.

While one major reason to remortgage is switch onto a better deal when your current mortgage ends in order to save money, another reason for remortgaging is to release equity from you home. This means taking out a bigger loan against your property in order to free up some of the cash you’ve built up in it.

Remortgaging to release equity is very common; in fact the LMS Monthly Remortgage Snapshot showed that in July 2024, 45% of people who remortgaged increased their loan size, by an average of £20,243.

However, remortgaging to release equity means your debt will increase so it’s a good idea to weigh up the pros and cons and to get expert advice from a mortgage broker. Read on for more.

What is equity?

Equity is the proportion of your home that you own. There are two ways your equity can increase:

• Mortgage payments: Each mortgage payment will pay back some of the capital you borrowed (unless you have an interest-only mortgage), reducing the amount you owe. If the value of your property stays the same, your equity will therefore increase over time. You can build up equity faster by making mortgage overpayments.
• If the value of your home increases: While if the value of your property increases, your equity will increase too. So if you bought a £200,000 house with a 10% deposit of £20,000 you would have started with £20,000 equity. But if the value increases to £250,000 you will have £70,000 equity (plus any equity built up via your mortgage payments).

How do I calculate how much equity I have in my house?

You can work out your home equity by taking away your outstanding mortgage balance and any outstanding secured loans from the value of your property.

For example, if your home is valued at £400,000 and you have £200,000 left to pay on your mortgage, the amount that’s left is your equity in the property – in this case £200,000.

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What are the main reasons for remortgaging to release equity?

There are lots of reasons why people remortgage to release equity, such as:

• Funding a home improvement project
• Paying for measures to improve your home’s energy efficiency
• A deposit for a Buy to Let you want to invest in
• Helping your child buy a house
• Remortgaging to pay off debts

It’s important to note that remortgaging to release equity by taking out a bigger mortgage is different to equity release. Equity release is a way of releasing money from the value of your home if you’re over 55 without having to move out or pay it back during your lifetime. Read on for more on this.

Speak to fee-free mortgage brokers at L&C for advice on whether remortgaging to release equity is the right option for you.

How to remortgage to release equity

Remortgaging to release equity invovles taking out a new mortgage deal on your property that’s bigger than your current one.

Remortgaging to release equity example

So for example, if you owe £100,000 on your existing mortgage but take out a new mortgage for £130,000, you would get access to £30,000. But be sure to check any remortgaging costs you may need to pay, like an arrangement fee. Our partners at L&C can check your current mortgage terms and look for the best remortgage deal for you, searching over 90 lenders so you don’t have to. You can call them on 0800 0732326 to speak today or start the process online.

What is loan to value and how does it affect borrowing?

Your loan to value ratio tells you what proportion of your home is borrowed.

• For example, If you buy a £200,000 house with a 10% deposit of £20,000 and take out a £180,000 mortgage for the remaining 90%, your LTV is 90%.

The lower your LTV, the better the mortgage rates you’ll usually get access to. So after 5 years, if the above house has increased in value to £250,000 what happens to your LTV?

• You’ll need to add up the original deposit of £20,000, plus the amount you’ve paid off of your mortgage over 5 years, say that’s £20,000 and add this to the amount your house has increased in value by of £50,000 – this is a total of £90,000. This means you’ll need a mortgage of £160,000 on a £250,000 property which gives you an LTV of 64%.

However, if you want to remortgage to release £20,000 of equity, you’ll need to take out a £180,000 mortgage on the £250,000 property. This means you’ll have an LTV of 72%. So you may not get the same range of deals compared to if you don’t remortgage to release equity but your LTV is still much lower than when you started.

What will happen to my mortgage repayments?

If you remortgage to release equity your mortgage payments will be higher than if you remortage without releasing equity because your debt will be bigger. You’ll also pay more in interest over the term of the mortgage, so it’s a good idea to make overpayments on your mortgage if you can afford to.

As we explain above, if the amount of equity you release when remortgaging pushes you into a higher LTV band than you would otherwise be, you may have to pay a higher rate on your mortgage too.

Speak to fee free mortgage brokers at L&C for advice on whether remortgaging to release equity is the right option for you

What are the pros and cons of remortgaging to release equity

You’ll need to weigh up the pros and cons of remortgaging to release equity:

Pros of remortgaging to release equity

• Freeing up cash that would otherwise be tied up in your home.
• If you use the cash for home improvements you could increase the value if your house
• You can use the money for any purpose
• You can typically borrow a larger amount than on a personal loan

Cons of remortgaging to release equity

• Your loan will be bigger: As well as facing higher mortgage repayments, you will pay more interest overall due to the additional borrowing.
• You may find you pay more interest overall than if you took out a personal loan even if the rate is lower because the repayments are stretched over a long period of time.
• If you can’t afford the repayments, your home could be repossessed.
• If your house’s value falls you could find yourself in negative equity – this is when the outstanding mortgage balance is greater than the value of your property.
• If you’re still in the initial period of your mortgage deal you could need to pay an early repayment charge if you remortgage. These can be as high as 5% of the balance of your mortgage. Find out more in our guide Early repayment charges and how to avoid them.

I own my house outright. Can I remortgage?

Yes, you can take out a mortgage on a property you own outright to release equity from your home. This type of mortgage is called an unencumbered mortgage. It’s similar to a remortgage because you’ll be releasing equity from a property by borrowing money against its value, except an unencumbered mortgage is a in effect a brand new mortgage on the property.

To get an unencumbered mortgage, the first step is to get a Mortgage Agreement in Principle. This takes just 15 minutes to complete and can be done online now.

Arrange an Mortgage Decision in Principle today with the mortgage experts at L&C

Releasing equity to buy another property

There are different ways in which you may release equity so that you can buy another property:

• Buy to let: You may be considering remortgaging to release equity from your home so that you can invest in a Buy to Let property. Bear in mind you’ll need to have a decent chunk of equity in your home to do this because you’ll usually need at least 20% to get a Buy to Let mortgage.
• Buying a second home: If you’re remortgaging to release equity so you can buy a second home, again, you’ll need a large amount of equity in your home because you’ll typically need to put down a deposit of at least 25% to get a mortgage on it. Plus, you’ll need to prove you can afford to pay the mortgage on both properties.
• Let to Buy: This involves renting out your current home and buying a new one to live in. You’ll switch your current mortgage to a Let to Buy mortgage and take equity out of it in the process for the deposit on the new home you’re buying. Find out more in our guide Let to Buy mortgages explained.

Is remortgaging to release equity a good idea?

Remortgaging to release equity may be worth considering if you have a decent chunk of equity in your home and are seeking to raise some money. But you’ll need to think carefully before increasing the size of your mortgage and what this means for your repayments.

Speak to fee free mortgage brokers at L&C for advice on whether remortgaging to release equity is the right option for you.

Alternatives to remortgaging to release equity

There are some alternative options to remortgaging to release equity you may want to explore:

• Further advance from your existing lender: This involves taking on more borrowing from your existing lender. This will typically be at a different rate to your main mortgage and may be an option if you don’t want to remortgage or if your lender’s further advance rate is competitive.
• Second charge mortgage or secured homeowner loan: Homeowner loans, also known as secured loans or second-charge mortgages, allow you to borrow money from a different lender to your original lender using your house as security. You’ll usually pay a higher rate on second charge mortgages compared to traditional mortgages. But by taking one out, you can access money in your property without touching your mortgage deal. Speak to our partners at Chartwell Funding on 01454 809 300 for no-obligation discussion of the possibilities.
• Unsecured personal loan: This type of loan lets you borrow money without putting up an asset (like your home) as security. Rates are typically higher than with secured loans and you may not be able to borrow as much. But it may be an option if you’re planning a smaller project like updating your kitchen.
• Credit cards: If you had wanted to remortgage to release equity for home improvements and it’s a relatively small job, you may consider using a credit card, especially if you can put the balance on a 0% interest card. Plus, paying by credit card also offers some extra consumer protection. But make sure you have a plan and timescale to pay it off.
• Downsizing: Another alternative way of accessing equity is downsizing your home. This means selling your home and buying a cheaper one. For example, if you sell a house worth £500,000 that you own outright and buy a new home for £250,000, you’ll have £250,000 minus any buying and selling fees. Read more in our guide Downsizing your house: The pros and cons.

Remortgaging to release equity and equity release – what’s the difference?

Equity release is a way of releasing money from the value of your home if you’re over 55 without having to move out or pay it back during your lifetime.

With a lifetime mortgage, you borrow money against the value of your property. The amount you can borrow depends on the value of the property and your age (and that of your partner if it’s a joint scheme).

While with a home reversion scheme, you can sell all or part of the property to a reversion provider. This means that, if your property increases in value and you sell up, you’ll only benefit from that increase on the part of the property you own.

In both cases, you’ll be allowed to stay in your home until you either die or go into long-term care, unless you breach the contract, such as by letting your home fall into disrepair. In those cases, technically, you could be forced to leave. Find out more in our guide Is equity release right for me?

Try Key Advice’s equity release calculator today to find out how much you could release

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