Equity release

[MorkandMandy]

Apologies in advance for knowing so little in this respect. We’ve been in our first home for ten years and are thinking of moving for a bigger house but ideally we’d extend what we have.
We can’t do that though, without some of the money that’s locked into the property.

We’ve got about 100k equity - I want a partial equity release to extend etc, but is that even possible? Would it make more sense to remortgage? (Spoke to the bank about this but they seemed to prefer the idea of a loan.) TIA.

I think in that scenario you’d remortgage. Equity release is really aimed at older people. Equity release is a loan which accrues compound interest intended to be paid off by the sale of your home when you die or go into care. If you can’t increase the mortgage next best thing would be a loan.

Ah I see thanks @Woeismethischristmas. So is remortgaging basically just buying back our own house at the current value? Our bank didn’t seem keen but sounds like it’s the way to go. Thank you.

A re-mortgage is borrowing more money against the same property.

So say you bought at £100k with an £80k mortgage.

5 years later, the mortgage is now £60k and the house is worth £140k.

You could borrow another, say £50k against your house, increasing your loan to £110k, taking into account the increased value of the house.

You definitely don’t want equity release! That’s effectively a mortgage for older folk who are stupid! The interest rates when they pay from the equity are horrendous! So remortgage. That’s a normal procedure and easy to be honest. As long as you have an income that can pay the mortgage of course.

Ah okay, that’s great. I wasn’t even sure what equity was tbh. It just feels daft to be scrimping for ways to improve the house when we’ve got the increased-value now.

Planning to use some of the money we release in remortgaging to pay a loan and basically cancel out the difference in outgoings with the monthly mortgage increase, so seems a good plan. Thank you!

cancel out the difference in outgoings with the monthly mortgage increase

This sounds odd & the lender will unlikely grant the loan for this purpose. Are you saying you can only afford the repayments by using the money loaned?

As well as there being sufficient equity in the house to support an increased loan, the lender will also check the affordability of the new loan - do you have enough income to repay it? The amount borrowed won’t be included in the income used to work out if you can afford the repayments.

@Chewbecca No, I’m just trying to make sure our outgoings don’t increase in order to do it. So atm say for example we pay £700 a month on our mortgage, I’m imagining those repayments would have to increase to around £900 a month once we’ve remortgaged the house at the current value. (It’s increased in value by 100k since we bought). So I’d pay the loan that’s currently around £200 a month with £7k of the equity we release from remortgaging and the rest would be for extension and the new deposit. Or have I got that completely wrapped around my neck? Sorry I’m probably not explaining myself well. We can afford a higher mortgage, but seems daft when we’re releasing a lump sum not to partition off some of it to pay the loan.

That does make sense but if you have other debts your mortgage lender might not be happy about giving you a further loan, but you can ask. There’s no guarantee you will repay that debt (although I’m sure you would)
Remortgaging to pay off a debt is often treated differently to remortgaging for home improvements as these often increase the value of the property

Sure, I can see why. I’ll perhaps just apply to remortgage based on current situation etc. without factoring the loan clearance in as a hypothetical. We had a new mortgage approved for if we moved and that was pretty high so hopefully it would work out okay. Having said that, this was all with the same bank I do all banking through so appreciate another lender might not be as keen. Thanks for the help!

What are the bank willing to offer?

We took out extra funds for the period of our remaining loan at the same rate as our original loan. It appeared as a separate line on our mortgage statement.

It does not make sense to take out a loan and use it to repay itself... whatever your logic there is.. I would look again!!

Paying off the debt & the extension - yes.
Paying off the loan does mean moving from a shorter loan term to longer which does = more interest paid in total so be aware of that.
Not sure what you mean by ‘new deposit’ - that might not be needed? Deposit for what?

@Chewbecca I guess I’m assuming that since we’d be remortgaging at the higher price and I only want to free up part of the money the house has made that we’d then put a much higher deposit back in? You know what - I really need to do some mortgaging for dummies research before I ask 😂 I thought remortgaging was essentially selling your house at it’s current value but basically to yourself so I intended to put a far bigger deposit back in (around 40%). Sorry, I really do know nothing!

Try to keep it simple.

You bought at x, and the loan was y.
House is now worth a, loan is now b (coz you have paid some off).

You want to increase the loan.

(There’s no such concept of a deposit in the above).

If you look at equity release - be careful - it looks like free money but at compound interest - ( may be better nowadays but that it was PILs did ) the repayment amount is horrid. £50k in 10 years ended up being £120k & it could have been more or their whole house

I am sure there are better ones but I would look at all other options before equity release including remortgage

@TizerorFizz

You definitely don’t want equity release! That’s effectively a mortgage for older folk who are stupid! The interest rates when they pay from the equity are horrendous! So remortgage. That’s a normal procedure and easy to be honest. As long as you have an income that can pay the mortgage of course.

For some, Equity Release can suit them. If you do not have children (inheritance), why wouldn't you release equity from your home?

Did you speak to your bank or your mortgage provider? We borrowed an additional £5k to do some home improvement. 10 year fix at 1.2%. All the info was on their website then we just had a chat with their advisor to confirm we could afford it.

@Parky04 - In that instance I would agree with you - if just releasing money from your home & do not think about inheritance etc yes I see your point. Also a modest amount for something you want to do - so e.g. visiting DCs very far abroad - or house renovations - but if you do want to be left with some money for DCs or care at home - it is an expensive way to borrow money.

DPILs did it - I would not.

Absolutely why buy a house to re-mortgage it, How people soon forget all those years of I wish our mortgage was paid off. It will turn into another financial services con like the hedge funds fiasco, just remember if it was good for you every man and is dog would not be pushing them.

See a financial advisor who can sort this for you.