Home owners who have paid a significant amount of their mortgage or whose property has increased can remortgage to release equity. This enables them to receive a certain amount of money that they can use for various purposes.
Individuals who need money for a home renovation, for the education of their children or to pay a debt should consider this option. The equity is established based on how much of the mortgage you have paid off so far. Equity is the amount of money you have paid for your house and it changes in time according to the price of the property and the amount of mortgage you have paid.
What You Should Know about Remortgage to Release Equity?
Numerous people choose to remortgage to get a better deal, to benefit from a lower interest rate or to change the type of mortgage they currently have. Should you choose to remortgage to release equity you will be able to borrow money against the value of your home. This is a viable option if your property value has increased recently.
It is recommended to consult a financial advisor to see if this is the best option for you. If you decide to go ahead with the remortgage, you should know that this process usually takes from four to eight weeks.
Why Should You Consider Remortgaging?
People decide to remortgage to release equity for various reasons:
- Some of them need the money to make a home improvement they have been postponing; individuals who want to upgrade their homes can do so with a remortgage.
- To have money for the education of their children or grandchildren; private schools and higher education are not cheap and most people cannot afford them without a loan.
- To have some extra cash when they retire, especially if they have a small pension
- To pay off a debt that has a high interest
- To go on the holiday of your lifetime or to buy a nice car that you could not afford otherwise.
Regardless of the reasons why you decide to remortgage, what matters is that you are aware of how it works and what it entails in the long run. According to The Times, "equity in this sense is how much of your home you own outright – in other words, the market value of your property minus any outstanding mortgage on it, known as the loan-to-value (LTV) ratio. "
Are There Any Risks Involved in Remortgaging?
A loan is a loan and it does not come without any risks; those who are determined to remortgage should be aware of the fact that this means:
- Taking on more debt, even if they receive the cash they need
- It might be difficult to get other loans in the future
- There is no certainty in the fact that the price of your house will continue to increase; this means that should prices decrease your equity will be negative.
- It comes with certain fees and charges such as administration fee, arrangement feed and others.
What Can You Do Instead of Remortgaging?
If you decide to go ahead with the remortgage to release equity, you should be convinced that this is the best option. If not, it is useful to know that there are alternatives such as: personal loans, which can be paid faster and save you money in the long run; joint mortgages- these consider the monthly income of both applicants and they allow you to borrow more money; credit cards- these are useful for those who need a small amount of money.
Equity release is the best option for people aged 55 or over; they can take a lifetime mortgage and continue to live in their home until they die. If you remortgage you can continue to live in your home and the loan is repaid at your death.
What Is the Main Advantage of Remortgage to Release Equity?
It is clear that releasing equity is a suitable option for those who need some money in their future projects; they can use it to consolidate certain debts, to renovate, to buy a car, to go on a vacation and so on. The money is available to them but it is important to understand that releasing equity means increasing the size of the loan.
What is the Drawback of Releasing Equity?
This is a financial decision that will impact your life and finances in the long-run and it should not be taken lightly. Once the loan is complete and you get your money, you will have higher monthly payments. Also, there is no certainty that prices will continue to increase; they can easily go down and this will result in negative equity; this means that the value of the loan will be larger than the one of your home.
How Can Negative Equity Impact You?
Negative equity is not something that you want for it can impact your finances significantly in the future; this means that it will be impossible for you to remortgage again or to move to another house in the future. At ukmoneyman you will find all the information you need so that you make an educated decision, one that you will not regret in the long run.
Should You Remortgage or Not?
It is entirely up to you to decide if a remortgage is the best solution for you. What matters is that you take your time to become familiar with your options. It is important to understand what this type of loan entails, what you risk and what the future consequences might be.
As long as you consult with a financial advisor, you know what to expect and you do things wisely, chances are you will be happy with a remortgage to release equity in the long run. This is a decision that you can take only once in a lifetime and you should treat it with utmost seriousness. After all, it will impact your financial future and your lifestyle until you die.
