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Remortgaging your existing residential mortgage vs equity release

Undecided between equity release or remortgaging your existing residential mortgage? Key could help you find the answer

If you’re looking to release some of the funds tied up in your home, you could look at remortgaging your property, or maybe even explore equity release.

Property wealth among those in or approaching retirement has never been higher. It's great news for homeowners looking for a financial boost later in life. But what if you want to stay in your own home and still reap the rewards of increasing house prices? 

Why not speak to our team to see whether equity release or remortgaging your existing residential mortgage could be the answer for you. Whichever route you look to take, there are a number of considerations to both. At Key, we want to make sure that each option is as transparent as possible, so here's a short guide to both to help you decide which suits your financial situation better. 
 

Why would you look at remortgaging or releasing equity?

If you own a property, it’s likely that your home is your biggest asset. There may come a time in your life where you’d like to access some of its value, without having to sell and move on. Our homes often mean much more to us than just being a place to live, and the thought of packing up and moving can often be a tough decision to make. 

Yes, you may have had to take out a mortgage to purchase your home, and although it’s a big commitment, it’s likely one that has grown in value over the years. You'll still own your home and what you own may also increase in value as well. 

Your “value”, which is commonly known as equity, is essentially tied up in the bricks and mortar of your property, so if you’d like to access it you’ll have to look into remortgaging or releasing equity in another way. Whether you’re planning a once-in-a-lifetime trip, want to pay for university fees or simply wish to have some money for you and your loved ones to enjoy, Key could help you.
 

How to work out your home’s equity

It’s pretty simple to work out your home’s equity.

The market value of your house – any outstanding secured debt = your equity

As an example, if your property is worth £400,000 and your mortgage is £100,000, you’ll have £300,000 of equity.

If you’re wanting to access some of this equity, then you can. A popular option is to downsize to a smaller, cheaper property – meaning you’ll pay off your mortgage and keep any amount left over once you’ve paid for the costs of selling and buying.

If you don’t want to move home, then you could look at equity release or remortgaging. Both are great options if you’re seeking to release funds. Maybe you’re thinking about how to release equity for an extension if you’d prefer to stay where you are, this would require permission from the lender. When releasing equity the good news is that you could use the funds in a variety of ways.

Remortgaging to release equity

One of the options available to you is remortgaging your property. If you’re wondering “how does remortgaging to release equity work?”, this is where you take out a different or additional mortgage secured on your home. It’s a little bit different to taking out a new mortgage when you buy a property.

Homeowners who have an existing mortgage against their property could have the option to remortgage their existing residential mortgage to receive a lump sum. That includes retirement mortgages, as age is not the barrier it once was. You could be eligible to remortgage your existing residential mortgage to take out equity on your home, as long as you meet the affordability criteria.

If you’re still paying your mortgage off and your initial fixed term is coming to an end, it’s potentially an option to remortgage your existing residential mortgage. Many people do this to get a better rate. But if you do have equity in your home, this is when you could look at releasing some of it.

Typically, the funds released through a remortgage are used to pay off other existing debts, such as credit cards or loans, or to add value to the property via home improvements.
 

Can you afford to remortgage your existing residential mortgage?

Remortgaging your property to release a lump sum is a decision which must be thought about carefully. If you decide to go ahead, your monthly repayments will likely increase to cover the bigger loan amount, and extending your mortgage's term means it will take you longer to pay it off.

If you’re exploring the option of remortgaging your existing residential mortgage to release equity, here are a few things you’ll need to look at to work out whether or not it’s an affordable choice for you:

  • The amount you still owe compared to the value of your home
  • Your income – this could be from your pension or work
  • Your monthly outgoings
  • What you’ll be using the money for

If you’re considering remortgaging to release tied up funds, speak to the expert team here at Key. We’ll talk you through the options available and see whether this is the one for you.

Positives of remortgaging

  • You could release a lump sum from your home
  • You could capitalise on your home's increase in value
  • Low interest rates
  • You could switch to a mortgage more suitable to your financial situation and spend your money in a wide variety of ways
  • You could consolidate all existing debts into one monthly repayment
  • You may be able to borrow more from a new lender

Things to consider before remortgaging

  • You'll need to prove affordability before being accepted
  • You could be refused based on your age, credit history or income
  • Remember a mortgage is secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
  • Some of your funds may be used to cover costs and fees
  • You'll always own your home
  • You should always think carefully before securing a loan against your home
  • It's important to think carefully before using your secured loan to consolidate unsecured debts
  • We charge an advice fee of 1.99% of the amount released, subject to a minimum of £1,499, usually payable when the mortgage completes.

Can you release equity without remortgaging?

Unfortunately you can’t. If you’re wanting to unlock some of the funds that are tied up in your home, equity release could be another alternative to remortgaging.

Equity release allows homeowners aged 55-95 to access a portion of their property's value. After any existing mortgage has been settled, the tax-free money released is then yours to spend in a variety of ways. Why not use our equity release calculator to see how much you could release.

With our lifetime mortgage plans, the most popular form of equity release, you retain full ownership of your property. So, you’ll be able to enjoy the funds you’ve released and your home, without the stress of moving.

That's because it's a loan secured against your home and it's usually repaid after your property is sold when your plan comes to an end. That's typically when you or the last remaining applicant either passes away or enters into long-term care.

Just like remortgaging, equity release isn’t for everyone, so it’s important to consider all of your options. You have to seek advice before going ahead. Remember that equity release will reduce the value of your estate, and the amount you’re able to leave as an inheritance. At Key, we offer a number of personalised extras such as inheritance protection and our no negative equity guarantee that will give you added peace of mind.
 

Can you afford equity release?

There are typically no monthly repayments associated with lifetime mortgages, the most popular form of equity release. If you wish, you may be able to pay off the interest as you go by taking out a plan which allows you to make either regular or ad hoc repayments, but it's not compulsory. 

If you’re thinking about exploring equity release plans further, why not speak to a member of our friendly team today and see what tax-free funds you could release from your property.

Positives of equity release

  • You can unlock tax-free funds from your home
  • With a lifetime mortgage, you can choose how you receive your funds – either in one lump sum or in smaller amounts following an initial release, known as a drawdown
  • You can use the money in a variety of ways, including making home improvements, clearing existing debts, passing on a living inheritance or booking that once-in-a-lifetime holiday 
  • With a lifetime mortgage, the most popular form of equity release, there are typically no monthly repayments to make as the loan, plus roll-up interest, is repaid when the plan comes to an end
  • Plans that meet the Equity Release Council standards offer the no negative equity guarantee, meaning you'll never owe more than your home is worth
  • There are no credit checks or mortgage affordability criteria to meet
  • With a lifetime mortgage, you retain full ownership of your home

Things to consider before taking out equity release

  • You have to get advice before releasing tax-free funds from your home - please read all our information and make sure it’s right for you
  • Key Equity Release offer lifetime mortgages only, which is a loan secured against your home. It will reduce the value of your estate and may affect your entitlement to means-tested benefits
  • All of our plans meet the Equity Release Council standards and come with several protections, including the no negative equity guarantee, which means you’ll never owe more than your home’s value
  • You should always think carefully before securing a loan against your property

Get advice from the experts

Whether you’re looking to remortgage your existing residential mortgage or considering equity release, remember it’s a big commitment, so speak to the experts who can help you explore all the options and make a decision.

With some products such as our lifetime mortgages, you’re unable to take one out without taking advice first.
Our friendly and experienced team are available to answer any questions you may have, and will help you choose the perfect option for you.

Next steps

Equity release calculator

Curious to find out how much in tax-free funds you could release from your home? It’s quick and simple using our equity release calculator.

Mortgage calculator

To get your quick mortgage calculation use our free online calculator for instant results.

Looking to switch your equity release plan?

Already taken out an equity release plan? Switch and you may be able to save money, or release more
Page last updated: Thursday 01 July 2021