Are you wondering how releasing equity affects your remortgage rates? Releasing equity involves borrowing against the value of your home, which can change your mortgage terms. This article will explain how it impacts remortgage rates and what to expect.
Keep reading to learn more about this important topic!
Understanding Equity Release in Remortgaging
Equity release unlocks the value tied up in your property. This allows homeowners to access cash without selling their home. By remortgaging, you can tap into this equity while switching to a mortgage with better terms or rates.
Homeowners might choose to release equity for many reasons. They may want to renovate their home, pay off debts, or invest in other opportunities. Applying for a remortgage typically requires proof of identification and income documents like payslips and bank statements.
Mortgage providers will assess affordability based on income, credit rating, and property valuation.
Impact of Equity Release on Remortgage Rates
Remortgage to release equity can increase your remortgage rates. Higher Loan-to-value ratios might lead lenders to charge more interest and higher monthly repayments.
How Loan to Value (LTV) Changes Affect Rates
Changes in Loan to Value (LTV) can significantly impact remortgage to release equity:
Potential Rate Increases and Their Causes
Releasing equity raises your personal Loan to Value (LTV) ratio, which often leads to higher interest rates. The increase in LTV shows an increased risk for the lender, and they might charge more for the new mortgage.
Arrangement fees can also add up here: a product fee of £999, a final repayment charge of £80, and a completion fee of £35. Administrative charges and solicitor fees further contribute to costs. Early repayment charges apply if you end your current mortgage term early. An overall cost comparison results in an APRC of 6.8%.
Benefits of Releasing Equity Through Remortgaging
Understanding how much equity release you can do through remortgaging can give you extra money for home improvements. It also provides a chance to find better mortgage rates.
Improved Cash Flow
Releasing equity can improve your cash flow. For example, use the money for home extensions or consolidate debt. Lower monthly mortgage repayments can free up funds instantly. By securing a lower borrowing rate, you save more each month.
Extra savings also help offset the existing mortgage costs. Use them to pay down principal faster. This reduces overall interest paid over time. Shifting to a mortgage lender like Revolution Brokers might offer better customer service too.
Opportunity for Better Mortgage Deals
Improved cash flow from releasing equity can lead to better lifetime mortgage deals. Securing competitive deals is easier with a lower Loan-to-Value (LTV) ratio. If your property value increases, you might qualify for better interest rates.
Switching to a flexible lender allows you to overpay on your mortgage without penalties. You can find a 5-year fixed interest rate ranging from 3.88% to 5.36%. The Annual Percentage Rate of Charge (APRC) varies between 5.9% and 6.9%.
A mortgage broker can help you in securing the best deal possible within these ranges.
Homes that meet certain criteria may also see better offers from lenders like Ulster Bank due to their lending policies, which consider energy efficiency among other factors
Conclusion
Releasing equity can impact your remortgage rates by changing your Loan to Value (LTV) ratio. A higher LTV might lead to increased interest rates. Always compare different mortgage options like fixed-rate or tracker mortgages.
Consider potential fees and other costs when making your decision. Releasing equity through remortgaging could improve cash flow, but weigh the pros and cons first.
FAQs
1. What is releasing equity in the context of remortgaging?
Releasing equity refers to accessing the cash value tied up in your home when you remortgage. It involves borrowing more against your home's value than your current mortgage balance.
2. How does releasing equity affect my remortgage rates?
When you release equity, it can impact your loan-to-value ratio (LTV). Higher LTVs often result in higher interest rates because they pose greater risk to lenders.
3. Will my credit score influence the new remortgage rate if I release equity?
Yes, your credit score plays a significant role. A higher credit score may help you secure better terms and lower interest rates when releasing equity through a remortgage.
4. Can I choose different types of mortgages when I release equity?
Yes, options include fixed-rate mortgages, tracker mortgages, and interest-only mortgages. Each type has its own rate implications based on market conditions and lender policies.
5. Are there additional costs involved with releasing equity during a remortgage?
Releasing equity may involve extra costs such as valuation fees, legal fees, and potential early repayment charges from your current lender.
