A guide to re-mortgaging and equity release
Your home is probably the most valuable asset you own, into which you may have invested tens of thousands of pounds over the years. With house prices having generally increased over the long-term, chances are you have built up considerable value – or equity – in your home, which you could leverage to top up your income, fund that dream holiday or even make further investments. When it comes to freeing up the equity you have built up in your home, you have two options.
You can either re-mortgage or use equity release. Both will help you unlock some of the cash you have tied up in your bricks and mortar.
But, how does each one work and which is the best option for you? Read on to find out more.
What is re-mortgaging?
There are two definitions of re-mortgaging. In its most simple form, if you are coming to an end of the fixed-rate or discounted term of your existing mortgage and want to shop around for a better deal, then switching from one mortgage to a new and better deal is an example of re-mortgaging. However, if you are a homeowner with an existing mortgage, you may also be able to re-mortgage to release a cash lump sum from the equity in your home.
The concept is quite simple – you arrange a new mortgage deal that is larger than your existing one, based on your home’s current value. However, whether you are looking to re-mortgage for a better deal, or to free up some spare cash, there are a few things to bear in mind. If you increase your mortgage amount, it will take you longer to pay off if you extend your term.
There may be additional fees and costs that you may incur. You will also need to provide your lender with evidence of your income and expenditure. And it’s worth bearing in mind that you may ‘own’ less of your home than you used to if you plan to hand the amount of equity you are freeing up back to your lender. So, if you are thinking of re-mortgaging, make sure you do the maths properly to ensure you can afford any additional repayments.
What is equity release?
If you are aged 55+ but are concerned about taking on a bigger or longer mortgage commitment, then an alternative might be to look at an equity release plan. Equity release enables you to access the cash tied up in your home, either as a lump sum, in several smaller amounts, or as a combination of both.
You can spend the money you unlock any way you like, although if you already have a mortgage, it will be used to clear that first.
There are two equity release options. A lifetime mortgage allows you to take out a mortgage secured against your main residence, while retaining ownership. The amount you borrow, plus interest, is paid back when you die or move into long-term care.
Home reversion, meanwhile, allows you to sell all or part of your home to your equity release provider in return for a lump sum or regular payments. You can retain a percentage of ownership and still live in the property, rent-free until you die. At the end of the plan, your property will be sold, and the proceeds split according to the proportions of ownership.
Re-mortgaging or equity release – which is best for me?
If you are considering re-mortgaging your home or looking at equity release, getting expert advice to guide you through your options is essential, and that’s where My Mortgage pro can help.
Equity release might seem like a good option if you want to access cash quickly without moving home. But it can be more expensive when compared to re-mortgaging.
An equity release plan might enable you to unlock more equity from your home, because if you re-mortgage, the lender will only offer what it thinks you may be able to repay. If you are on a retirement income, this may be smaller than when you were working.
However, equity release could affect any means-tested benefits you might be entitled to or are currently claiming and may also have an impact on the amount of inheritance you are planning to leave to your children or family. And it’s also worth bearing in mind that if you release equity from your home now, you might not be able to rely on your property for income later in life, if, for example, you suffer from ill health or need to pay for long-term care later in your retirement.
Contact us for more information about re-mortgaging and equity release
My Mortgage Pro is a professional mortgage information service. While we don’t give advice, we aim to provide you with simple, jargon-free, no-nonsense information about re-mortgaging and equity release to help you make the right choice. We can also connect you with a specially selected panel of leading mortgage advisers, who are authorised and regulated by the Financial Conduct Authority, who will provide advice tailored to your specific circumstances and help you find the right solution, fast.
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