The number of people in the UK carrying out home improvements rather than moving has increased five-fold in the last four years, according to a recent study by the Independent, with many of these improvements increasing the homeowner’s equity in the process. Contrary to popular belief, equity isn’t just for private industry, and as well as holding equity in their home, homeowners can release equity from their homes. In this post, we’ll explain how you can remortgage to fund new projects.
How to release equity in your home
If you’re looking for cash to start a new project and don’t want to take out a loan, then you may be able to access cash by tapping into the equity you already have in your property.
You do not own the entire value of your house until you have completely paid off your mortgage. Instead, you own the portion that you’ve paid off through repayments and the deposit, which is known as the equity.
As this money is tied up within the home, it isn’t available for you to spend, but there are ways that you can free up some of this cash without selling the property. One of the main ways that people do this is by remortgaging.
How does remortgage work?
When you remortgage, you switch to a new mortgage deal, as explained by Trussle, which helps homeowners find the best remortgage deals. This new deal can either be with your current lender (which is sometimes known as a ‘product transfer’) or with a different provider. The remortgage allows you to free up a lump sum of cash from the property for your own personal use.
How do I calculate my equity?
It’s relatively simple to calculate the equity you have in a property.
Say you purchase a property for £100,000 and, after living in the property for five years, its value has risen to £150,000. Meanwhile, over this time, you’ve been making regular payments on your mortgage, so the balance you owe is £70,000.
In this example, your equity value is £80,000 (£150,000 minus £70,000).
You can then free up a proportion of this equity by remortgaging the property. So, instead of remortgaging the £70,000 balance, you could remortgage for £90,000 and free up £20,000. When you discuss remortgaging with your lender, they will discuss how much you can borrow based on your finances.
How can I use the money?
People remortgage their property for a variety of reasons. Some people may simply want to fix their payments if they’re on a variable tariff, while others may find a better deal that allows them to lower their monthly payments.
However, crucially, remortgaging allows people to raise funds for personal projects, such as launching a business. In addition, remortgaging can be a smart way to fund home improvements, as the improvements may increase the value of the home, making them more of an investment than an expense under the right circumstances.
With high property prices, rising stamp duty costs and a sluggish property market, it’s easy to see why more people are considering renovating their property rather than buying a new one. However, before you take out a loan to cover any projects, be sure to look into the possibility of using your own equity by remortgaging.