My house has increased in value, is now the time to remortgage?

New data from Rightmove reveals a 7% growth in house prices as monthly values continue to soar. 

Despite recent challenges surrounding the housing market - increased cost of living and record low house sales - property values remain high. Although challenging for those looking to buy a home for the first time, people on the property ladder may have an opportunity to capitalise on their homes' increased value.  

But is remortgaging to release capital from your home the right move for you? Here is what you need to consider. 

What is equity?

Equity is the portion of your home that you own. It equates to what you have paid off your mortgage already, in addition to the money you put down as a deposit. 

What does loan to value (LTV) ratio mean?

Loan to value (LTV) is the percentage of the home you own against what remains on the mortgage. For example, if you put down a 10% deposit, the other 90% would be mortgaged, so your LTV would be 90%. 

However, in remortgaging terms, your LTV should be lower since you’ve been paying off your mortgage. Ultimately you should own more of your home than the initial deposit you put down. The lower your LTV, the more attractive you appear to lenders.

Why remortgage to release cash from your home?

Remortgaging to release cash from your home can be a great way to free up some money, especially if your home has increased in value. Even if you’re not looking to release cash from your home, remortgaging could allow you to get a better deal and potentially pay less on your monthly repayments.

What are the advantages and disadvantages of remortgaging to release equity?

Whether you’re simply exploring your options or ready to take the step, it’s important to understand that all financial decisions require consideration and deliberation. All monetary transactions have their own unique advantages and disadvantages and this is what you may need to consider:

Advantages

1. Releasing equity could fund new home renovations
2. The cash you release could help pay off any existing debts
3. It could help raise money for other expenses (new car, holidays or home improvements)
4. If your home’s value has increased, remortgaging may not change your LTV that much, meaning your monthly repayments may not increase

Disadvantages:

1. If you pay off existing debts, you may end up paying more interest on the mortgage loan compared to the original loan term you took out 
2. You may have to pay early exit charge with your current lender if you choose to remortgage before your current mortgage term is up
3. Taking out a larger mortgage may mean your monthly payments increase - an adviser will be able to assess this through an affordability assessment 

When should I speak to a mortgage adviser?

If you are thinking of remortgaging your property to release equity from your home, consider doing your research before you sit down with an adviser. Knowing if remortgaging is the right choice for your circumstances is an important place to start. Find out more about remortgaging and help inform your decision making.