Realistically, there are just two approaches you can take if you decide to refinance your home:
- Take your business directly to your chosen bank or lender
- Work with a trusted independent mortgage broker
While it is technically possible to access a good deal with either approach, working with a broker is guaranteed to save you time, effort and money. You need only consider the complexities of calculating your requirements and completing your application to understand the value of independent broker support.
If you choose to remortgage your home manually, this is how the initial process works:
- Establish the value of your property. You can get a basic indication of your property’s value using an online portal like Zoopla, though you may need to pay for a formal valuation your lender will accept.
- Calculate your equity. This means working out how much you still owe your lender, in order to determine how much of your property you actually own and how much of your mortgage is outstanding.
- Consider remortgage options. Irrespective of your requirements, you will need to choose between several types of remortgage loans: Interest-only, repayment, tracker, discount, fixed rate and so on.
- Compare the market. Before applying, you also need to conduct an extensive and comprehensive market comparison, taking into account hundreds of potential offers from dozens of competing lenders.
- Submit your application. Only then can you begin the formal application process, which includes provision of sufficient supporting documentation to verify your financial position and eligibility.
In a typical case, organising a refinancing deal independently takes approximately two months. If there are any delays or complications along the way, it can take significantly longer.
Working with a broker, the vast majority of the complications involved in applying for a refinancing deal are taken care of on your behalf. As an added bonus, your broker will also handle the negotiation process to ensure you gain access to an unbeatable deal.
As the vast majority of reputable brokers offer all the above free of charge (for the borrower), it simply makes sense to seek expert support at the earliest possible stage.
Remortgage or equity release
Equity release is becoming an increasingly popular option for UK homeowners looking to tap into the capital they have tied up in their homes. Likewise, anyone who has an existing mortgage can leverage their equity by choosing to remortgage. This basically means taking out a new mortgage that is bigger than their existing mortgage, in order to raise funds for any given purpose.
The important question being that when both options are available, which is best? If you intend to access the equity you have tied up in your home for any reason, should you remortgage your property or consider an equity release scheme?
Reasons for releasing equity or remortgaging
Equity release schemes and refinance deals can be used to raise funds for almost any purpose whatsoever. With most people, the home you own is the single most valuable and important possession you will take ownership of.
Not to mention, an asset that can be used to secure a wide variety of financial products against.
Some of the most common reasons for releasing equity or remortgaging include funding home improvements, major extensions and renovations, second property investments, vehicle purchases and so on.
Rather than taking out a second loan to cover the costs, you instead ‘unlock’ the value of your current home to get a better deal.
How do you calculate equity?
The equity you have in your home is calculated by subtracting your outstanding mortgage debt from the current market value of your home. In a typical example, if your home has a current market value of £300,000, and you still have an outstanding mortgage balance of £220,000, you have £80,000 of equity.
With most lenders, the amount of equity you have tied up in your property will influence your eligibility for financial support and the amount of money you can borrow. You may also find that depending on how much equity you have tied up in your home, there are various different options to explore when looking to raise funds.
Whatever your objectives and current financial position, it is essential to consult with an independent broker to ensure you understand the available options. Particularly if considering entering into a refinancing deal or equity release scheme, you need to carefully consider the advantages and disadvantages, before going ahead.
Remortgaging to release equity
One of the easiest and most affordable ways to release equity tied up in your property is to remortgage. Whether you choose to stick with your current lender or search for a better deal elsewhere, remortgaging is a good option for raising funds for almost any purpose.
This type of refinancing works by effectively ‘extending’ your existing mortgage and replacing it with a larger loan. You initially took out a mortgage of £200,000 and have subsequently repaid £70,000. You need to raise funds for a major home improvement project, therefore you replace your remaining £130,000 mortgage with a £180,000 refinance loan, subsequently freeing up £50,000 to fund the refurbishments.
In many instances, switching to a new lender can also result in significantly lower monthly repayments and a more competitive rate of interest for the life of your mortgage. Speak to an independent broker to discuss a whole-market comparison, if considering remortgaging to release equity.
Equity release
An equity release scheme can also make it quick and easy to access the capital tied up in your home. The biggest difference being that with equity release, you effectively transfer ownership of your home (in part or in full) to a third-party lender. Subsequently, the money provided is repaid in full when your home is sold, either when you pass away or move into permanent care.
Equity release can be a good option for individuals and households who are ‘cash poor’ but ‘asset rich’. For example, you may live in a property with a value of £500,000 or more, yet have little to no savings or income at your disposal. Enrolling in an equity release scheme could allow you to access some or all of the money tied up in your home, while at the same time enabling you to live there rent-free (or for a small monthly ‘rent’ fee) for the rest of your life.
The downside of equity release being the way in which all such schemes will significantly reduce the value of your estate and your ability to pass your assets on as inheritance. You may also find that equity release impacts your state benefit entitlement and your tax position.
Under no circumstances should equity release be considered without first seeking expert advice from an independent broker or qualified financial advisor.
Independent broker support
By far the quickest, easiest and most cost-effective way to leverage the money tied up in your home it to seek the support, input and expertise of an established broker.
Along with helping you get to grips with the available options, your broker will work hard to negotiate the best possible deal on your behalf with a panel of specialist lenders across the UK.