Yes, you can remortgage to raise capital. Remortgaging allows homeowners to release equity from their property by borrowing more than their existing mortgage balance and using the extra funds for other purposes, such as home improvements, debt consolidation, or major purchases.
Remortgaging to raise capital can be a useful financial strategy when done carefully, but it’s important to understand how it works, the potential benefits, and the risks involved. Here’s everything you need to know.
What Does It Mean to Remortgage to Raise Capital?
When you remortgage, you switch your existing mortgage deal to a new one with another lender. If your home has increased in value since you took out your original mortgage, or if you’ve paid off a significant portion of it, you may have built up equity, the difference between your property’s market value and your remaining mortgage balance.
Raising capital through remortgaging means increasing your mortgage amount to release some of that equity as cash. For example, if your home is worth £300,000 and your remaining mortgage is £150,000, you could remortgage for £200,000. The new mortgage would pay off your old one, and you’d receive £50,000 to use as you wish.
Common Reasons for Raising Capital Through Remortgaging
There are several reasons why homeowners might want to release equity:
- Home improvements: Many people use the funds for renovations, extensions, or energy-efficiency upgrades. This can increase the value of your home and improve your living space.
- Debt consolidation: Remortgaging can help combine multiple debts (like credit cards or loans) into a single, lower-interest monthly payment.
- Buying another property: You might use the funds as a deposit for a buy-to-let property or holiday home.
- Helping family: Some parents release equity to help their children get on the property ladder with a deposit.
- Major purchases or life events: Equity can also be released for things like weddings, education fees, or even starting a business.
While there are many valid reasons to raise capital, it’s essential to make sure the decision is financially sound and sustainable in the long term.
How Much Capital Can You Raise?
The amount you can raise depends on several factors:
- Property value: The higher your home’s current market value, the more equity you may be able to release.
- Loan-to-value (LTV) ratio: Most lenders allow borrowing up to around 90% of your property’s value, though the best rates are usually available with lower LTVs.
- Income and affordability: Lenders will assess your income, outgoings, and credit history to ensure you can afford the new repayments.
- Purpose of the funds: Some lenders may limit the amount you can release depending on how you intend to use the money.
A mortgage adviser can help you calculate your potential borrowing limit and find the most suitable deals available.
The Benefits of Raising Capital Through a Remortgage
- Lower interest rates: Mortgage rates are generally lower than personal loan or credit card rates, so this can be a cost-effective way to borrow larger sums.
- Flexible repayment terms: You can spread the repayment over a longer period, helping to manage monthly costs.
- Consolidating debts: Combining multiple debts into one payment can make budgeting easier and potentially save money on interest.
- Home value growth: If you use the funds for improvements, you could increase your property’s market value and recover the cost later.
The Risks and Considerations
While remortgaging to raise capital can be helpful, it also comes with risks:
- Longer repayment period: You may end up paying more in interest over time if you extend your mortgage term.
- Secured debt: Any additional borrowing is secured against your home. Failure to keep up repayments could put your property at risk.
- Early repayment charges: If you’re still in your initial fixed or tracker period, you might face exit fees or early repayment penalties.
- Higher overall cost: Even if your monthly payments are lower, the total amount repaid over the life of the loan could be greater.
- Changing interest rates: If you switch from a fixed to a variable rate, your payments could increase in the future.
Before making a decision, it’s wise to seek professional advice to assess whether remortgaging is the most suitable option for your needs.
Alternatives to Raising Capital Through a Remortgage
If remortgaging isn’t the right fit, there are other ways to access funds, including:
- A further advance from your current lender (an additional loan secured against your home).
- A second charge mortgage, which runs alongside your existing mortgage.
- Unsecured personal loans, for smaller sums or shorter borrowing terms.
Each option has its own costs and implications, so comparing them with expert guidance is essential.
The Role of a Mortgage Adviser
A mortgage adviser can review your financial situation, compare the options across multiple lenders, and explain the potential benefits and drawbacks of remortgaging to raise capital. They’ll also help you understand the long-term impact on your finances, your loan-to-value ratio, and your future borrowing options.
Because every lender has different rules about releasing equity, a mortgage adviser can save you time and ensure you find a suitable deal.
Summary
Remortgaging to raise capital is a common and legitimate way for homeowners to release equity for major expenses or financial goals. However, it’s not a decision to take lightly. Increasing your mortgage debt can affect your long-term finances and potentially increase your exposure to market changes.
Before proceeding, consider your reasons carefully, compare all available options, and speak to a qualified mortgage adviser. They can guide you through the process and help you find the best possible outcome for your circumstances.
