Release Equity for Home Improvements

Since the pandemic it seems everyone has been carrying out home improvements at their property. Releasing equity for home improvements is therefore a hot topic so we are going to go into more detail today.

What is equity release?

Most people purchase a house using a mortgage and until that mortgage is paid off, they do not own the property outright. Home equity refers to the value of your home you own without any debt attached. Working out your home equity is simple, subtract your mortgage balance away from how much home is worth. For example, a home worth £200,000 with a remaining mortgage of £150,000 would equal £50,000 in home equity.

Equity release is a way to unlock the value of your property and turn this into a cash lump sum. This might sound an attractive option if you are facing a pension shortfall, need to meet an unexpected expense or plan to do home improvements. 

If you have home equity, you may be able to access it to fund home improvements. Home improvement projects are one of the most common reasons to release equity.

Releasing equity to renovate

To release equity to renovate you must borrow against some of your available equity. How much you can access depends on how much equity you have and your credit score. Your personal circumstances and finances will be rigorously assessed.

Ways you release equity from your property

Remortgage for home improvements: Remortgaging is when you switch from your existing mortgage to another mortgage with more beneficial repayment terms such as a lower interest rate on monthly payments. When you remortgage for home improvements, we can find a mortgage loan that is larger than the amount owed on your current mortgage, this extra amount is secured by home equity.

Second charge mortgage: A second mortgage is when you release equity by adding a second mortgage to the same property. Taking a second charge mortgage means you won’t need to pay early repayment charges because the mortgage is not being paid back earlier than agreed. You simply take out a second mortgage and then make monthly repayments to both mortgage providers.

Lifetime mortgages: Sometimes referred to as a reverse mortgage, is another method of equity release for home improvements specifically for senior citizens who own their home outright. These type of mortgages work by providing up to 100% of the homeowner’s home equity as a lump sum payment and the total cost of the mortgage is repaid upon the death of the homeowner(s) through the sale of the property.

Home equity loan: A home equity loan is a type of secured loan and very similar to a second charge mortgage. The homeowner receives the loan as a single payment to be used as they wish or for a home improvement project. The loan will be paid back through monthly repayments for a fixed period until all of the loan and interest have been repaid.

Secured loan: A secured personal loan can sometimes be obtained that uses home equity as collateral such as a secured home improvement loan.

Is it worth it?

Releasing equity for home improvements can be a good idea for some people, you are after all, using this money to improve the property and simultaneously increase the property value and your home equity again. This is definitely the case if you create an extension, loft conversion or add a conservatory.

To find out how you can release equity for home improvements, please get in touch.

*Please note: Think carefully before securing other debts onto your mortgage. Your home maybe repossessed if you do not keep up repayment on your mortgage. Equity Release may involve a lifetime mortgage (home reversion scheme). To understand the features and risks, ask for a personalised illustration.

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