Remortgage To Release Equity
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Remortgage To Release Equity
Steven Hargreaves explains how remortgaging to release equity works.
Can you remortgage to release equity?
Yes, you can remortgage to release equity and it’s something that happens day-in, day-out. People decide they want an extension on their property, new windows or a new bathroom or kitchen.
At the moment, a lot of people are coming to us having used the Help to Buy equity loan and want to remortgage to pay off that loan. There are hundreds of different reasons you might release equity.
Can I remortgage early to release equity?
Yes, you can, but the biggest caveat is that a lot of mortgages have early repayment charges. With many lenders, for example, a five year fix will have penalties at 5%, 4%, 3%, 2% and 1%, reducing each year. So if you remortgage early you potentially could have a hefty charge to pay.
You’ve always got to work out whether it’s still beneficial to do it. If, for argument’s sake, you were raising £8,000 but it was going to cost you £3,000 in penalties, it’s probably not worth it.
What are the reasons for remortgaging to release equity?
There are hundreds of reasons for remortgaging to release equity. As I mentioned, it might be an extension, new windows, a new kitchen or bathroom. It could be to buy another house.
I’ve got a couple at the moment who are remortgaging equity from their current residential property to put down as a deposit for a Buy to Let property. That happens quite regularly.
We do the Buy to Let mortgage at the same time as releasing equity on the remortgage.
It’s your equity. We’ve just got to pick the lender that’s going to be the most beneficial for you.
How do I remortgage to release equity in my property? How does it work and how easy is it to release equity?
It’s very easy. It’s not a difficult process. In most cases, when we’re looking at a remortgage, the lender we approach would offer you a free valuation of your property and free legal fees.
If you were going from Halifax to Nationwide or Nationwide to HSBC, you need a solicitor involved, but in most cases, the new lender would pick up the tab for those legal fees.
It is subject to affordability, as you’d expect me to say. The affordability calculations would be worked out on the new amount you want to borrow. We need to confirm that you can afford the new payments.
It’s also subject to valuation. I had a client around eight months ago who took out a 95% mortgage. He’s now asked if he can release equity to do a loft conversion for £30,000. But the problem is there’s no equity to release. It’s too soon – he doesn’t have any equity in the house to access.
There are other ways of doing it, but they’re not quite as simple as a remortgage.
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How long does it take to remortgage to release equity?
It’s probably down to the person’s motivation. When you’re dealing with free solicitors, the service that they offer may not perhaps be as good or as quick as a paid-for solicitor.
But I’ve had a remortgage go through within two and a half weeks. In that particular case, my client wanted to get it done very quickly and he was chasing the solicitors on a daily basis.
We got the mortgage offer turned around within three or four days and then it was with the solicitors to get everything sorted out. They were sending everything recorded delivery – which is a little bit more expensive but it got there faster. The client filled all the forms out
within 45 minutes of receiving them from the solicitor.
There was a lot of motivation there, and you can get them done very quickly. But in some cases, the solicitors may not be as motivated or won’t deliver the same level of service as a paid solicitor.
How much can I remortgage for and release equity?
Different lenders will lend different amounts. Santander, for example, won’t lend for debt consolidation over a certain amount. If you wanted to borrow more than their limit, we wouldn’t choose that lender.
The majority will go up to 90% of the value of the property. That will then be subject to affordability, to make sure you can afford the payments.
Normally, we’d chat through it together, looking at how much you can afford and the purpose of the borrowing. That’s quite important because there are certain things a lender wouldn’t release equity for.
I’d be working out the affordability, how much you could borrow against how much you wanted, and then how much it would cost. We’d work out if there were any early repayment charges and take them into account. It often isn’t beneficial if there are early repayment charges. Everything will also depend on your personal circumstances.
You’ve explained how a mortgage broker can help – is there anything else we need to know?
A good mortgage broker will talk you through the process and work out which lender is the most beneficial. We would approach lenders for certain cases that wouldn’t be suitable for others, based on the amount you want to release and your specific situation.
A mortgage broker is much better informed, making it much easier than doing it on your own. We will guide you through the process easily.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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