Remortgage advice - equity and your home

8 October2009

Finding a good remortgage deal is important for homeowners. For many, it`s a good opportunity to reduce outgoings - especially in the current economic climate, when mortgage rates are typically lower than in recent years.

One of the most important factors in finding a mortgage is how much equity you have in your home.

What is `equity`?

In short, your equity is the proportion of your home`s value that you owe nothing on, in terms of mortgages and secured loans. This includes whatever proportion you have already paid for (your deposit and the amount you`ve repaid towards your mortgage, not including interest) and any increase in the market value of your home.

So, for example, if you put down a 30,000 deposit on your home, and you have repaid 5,000 of your mortgage so far, and your home`s value has increased by 15,000 since you bought it, you would have 50,000 of equity.

However, it is also possible to have `negative equity` - when you owe more on your mortgage than your home is worth. This can be caused by a fall in the value of a property, and it would mean that selling your home would not produce enough money for you to be able to pay off your mortgage - making it very difficult to find a remortgage.

Why is equity so important for my remortgage?

In almost all cases, your lenders will require you to have some equity in your home before you can get a remortgage (there are some exceptions, but this is rare these days).

Any increase in your equity since you started your last mortgage deal will be to your advantage, as you`ll be able to effectively put down a larger deposit on your remortgage. This will make finding a good remortgage deal more likely, and it could even enable you to borrow more money if you`re looking to `upgrade` and move to a bigger home (providing your income is high enough to cope with bigger mortgage payments).

Alternatively, you could borrow the remaining amount owed on your existing mortgage, but on a deal with a lower interest rate - which would reduce the amount you pay each month.

Remortgaging for equity release

In some cases, you may be able to `draw on` some of the equity in your home in the form of `equity release`. This can be helpful for people with other debts that they need to pay off, but it can also be used for other purposes, such as freeing up cash for home improvements.

However, keep in mind that withdrawing equity from your home will mean you are increasing your debt. This will either mean that you will take longer to repay the mortgage, or that you will have to increase your mortgage payments to cover the additional borrowing. For these reasons, you should only withdraw equity from your home if you are certain that you can afford the cost of repaying it.

It`s essential to think very carefully before securing any kind of debt against your home, as it could be repossessed if you do not keep up with your repayments.

If you are thinking about remortgaging, click here for more information or call one of our expert mortgage advisers today on 0800 195 2913.

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Tags: remortgage, equity, home, mortgage, remortgage advice, advice on remortgage, remortgage equity, remortgage negative equity, remortgage advice on equity, equity release

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