Which Is Better – Remortgaging Versus Releasing Equity?

Which Is Better – Remortgaging Versus Releasing Equity?

Remortgaging and Releasing Equity

Remortgages can often offer lower interest rates than a home equity loan although there are lots of situations where a remortgage may be less favourable than a homeowner loan.

Both types of borrowing are fundamentally the same in that you offer your home as security for the loan. The lender takes a legal ‘charge’ over your property and it means your home is at risk if you fail to keep up your repayments.

You may benefit from a lower interest rate on a remortgage although you will often find that the proportion of the value of your home that you can borrow will be lower on a remortgage than on a secured loan. In addition, a remortgage can be hard to arrange if you’re self-employed or you have experienced credit problems in the past.

Furthermore, there may be reasons that you want to borrow additional money without changing your existing mortgage. For example, your main mortgage may be on an exceptionally low interest rate and you do not wish to switch your mortgage from your current lender. In addition, you may have ‘early repayment charges’ for redeeming your current mortgage which you do not want to pay.

In all the above situations a home equity loan may be much more suitable for you. As it is taken out in addition to your main mortgage you do not have to switch your home loan away from your current provider. This means you can continue to benefit from a low-interest rate as well as avoid any early repayment charges.

A home equity loan can often be easier to arrange than a remortgage. Secured lenders are often happy to accept applications from self-employed borrowers or from those who have a less-than-perfect credit history. You may also find that the costs involved in a remortgage are prohibitive. You can often pay several hundred pounds in arrangement, valuation and legal fees to switch your mortgage from one lender to another.

In addition, well-publicised liquidity problems have meant that many banks and building societies are restricting their remortgage lending to a low ‘loan to value’. This means that remortgages are often restricted to around 60-70 per cent of your home’s value. A home equity loan will often let you withdraw a much higher percentage of the equity in your property.

Whilst there are some advantages of a remortgage over a home equity loan there are lots of situations in which a secured loan may well be a much better solution for you.

To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.

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