Equity release

Re-mortgaging to release equity- what works well?

When autumn comes with darker and colder evenings I often find myself spending more time on the sofa watching TV. Whether you are watching cooking programs, motorsport or Rugby we all tend to spend more time at home around this time of the year. I don’t know about you but this often leads to serious discussions with my wife about the state of the carpet upstairs or the look of our dated kitchen. Couple that with the thought of having family over for Christmas and you will find that many of us are considering home improvement projects this time a year.

If you don’t have a saving pot you can use, releasing equity from your property can be a cost-effective way of financing these projects. This is particularly true as interest rates continue to be low but what are the options out there? Read on for a helpful summary:

  • Re-mortgaging: This involves refinancing your entire mortgage, either with your existing lender or with a new one. With rates at record lows, this offers the chance to switch to a cheaper deal. A re-mortgage can involve simply moving to a different deal with the same size loan, or taking on extra borrowing and releasing some of the equity in your home by extending the mortgage.

Things to consider:

-Beware though that switching to a much lower rate may seem like a good idea, but there are likely to be early repayment charges to pay if you decide the leave your existing deal early. Before jumping ship check whether any early repayment charges still apply to your mortgage and how much they will be.

-Those outside of mortgage deal periods and paying their lender’s standard variable rate are likely to find they are early repayment charge free and will only have to pay a small exit fee. Still, you should also consider that the application process is more stringent these days and will involve ensuring that you are able to afford the new mortgage.

  • Further advances: Rather than withdrawing equity, this is another option to unlock some of the value from your home.  This is a second loan, essentially a top-up mortgage, on your property from your current lender. It allows a borrower to keep their existing mortgage deal and then borrow some more money on top of that. Some lenders will have specific rates at which this can be done, while others will offer you a choice of their standard mortgage deals. Once you get the advance you will effectively have two rates to pay, your actual mortgage and on the extra cash you released. The rate you get on the further advance may be more or less than your current mortgage, there will also be an arrangement fee to pay.

Things to consider:

-One of the tricky elements of a further advance is that you can end up with two loans on different deals that end on different dates. This means the further advance fixed rate would end before your mortgage deal does so it would move onto a standard variable rate, upping your overall repayments.

  • Personal loan: Though not an equity release, this is a viable option to consider especially since rates have fallen to record lows in recent weeks. Application criteria for a personal loan tends to be easier than a mortgage and it doesn’t rely on your house having increased in value. Also, there is no risk of losing your home, which you may face if you can’t keep up with mortgage repayments.

Things to consider:

A personal loan can’t be spread over 25 years, as can a mortgage. Personal loans tend to have a repayment period of between two and seven years, but depending on the interest being paid, you could still make a saving.
At Spot on Mortgages, we don’t charge a fee for our advice so get in touch with us to review your option further.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

 

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