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What is the best way to release cash from your home?

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Michael Brown

Acting Editor
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One of the benefits of paying off a large portion of your mortgage is that you will have built up equity in your home. This can then be used for a variety of other purposes, such as home renovations or to subsidise your child’s higher education.

But what is the best way to access the equity locked in your home? Broadly speaking, the best way to release cash from your home depends on your personal circumstances, such as your age, your property’s current loan-to-value (LTV) and how quickly you need the cash and your ability to meet monthly repayments.

Below we discuss the three main ways for homeowners to release cash tied up in their home. These are: 

  1. A remortgage or additional borrowing from your existing lender
  2. A secured loan
  3. Equity release – such as a lifetime mortgage

Should I choose to remortgage?

The first option is to get a remortgage or additional borrowing from your existing mortgage lender. To understand how this works, consider this example:

Bob owns 60% of his property and, over the years, it has increased in value to £250,000. Now is the time when he would like to use £20,000 to fund his granddaughter’s university tuition. To do this he has chosen to remortgage his home. Since he has never missed a mortgage payment and his home has increased in value (meaning if he were to default on his payments the bank would have valuable form of collateral) his lender approves his request. Before remortgaging, Bob’s outstanding balance on his mortgage was £80,000, but with the additional £20,000 of his home’s value added to his payments, this now stands at £100,000.

Compared to equity release and secured loans, a remortgage is often the lowest interest cost option for releasing cash from your home unless you have an early repayment charge. In this case you may want to use an additional borrowing product from your existing lender instead.

Sometimes the interest rates for additional borrowing can be higher than a lender’s remortgage rates, which means at this point you should compare these total costs against a secured loan.

Should you choose a secured loan?

If speed is of the essence, then a secured loan is a faster alternative than some equity release options or a remortgage. In addition, they are preferable for those who have a poor credit score and are unlikely to obtain financing through a remortgage.

Secured loans can be a great way to consolidate debt which may be impacting your credit score. However, if you are thinking of releasing equity from your home to consolidate debt, consider all your options. Our guide to using a loan to pay off your credit card explains these in more detail.

Of course, the downside to using a secured loan is that it usually charges higher fees and interest rates than an equity release plan or remortgage.

You can get a secured loan directly from a few lenders or use a secured loans broker, such as Loans Warehouse, to access a wide range of lenders. The more complex your circumstances the more beneficial a broker can be. They do charge a fee for these services, but their knowledge of the market can make all the difference in finding the right lender.

Find out more about how a secured loan works and compare secured loan interest rates.

Should you choose equity release?

If you are 55 years old or over and think you could have issues meeting the affordability requirements of a remortgage or secured lender, then equity release may be a starting point for you.

Those investigating this option will find that the most common form of equity release is a lifetime mortgage. This allows you to borrow money using your home as security but does not allow you to pay this back until you either enter long-term care or pass away. Until then, you will keep incurring an interest charge, which can be paid at your discretion.

However, this is one of the main disadvantages of a lifetime mortgage as debt is compounded and can end up being a significant figure. If left to balloon, it could reduce any form of inheritance you plan to leave behind for your loved ones.

That being said, all providers registered with the Equity Release Council use a ‘no negative equity guarantee’. This means you will never owe more than the property is worth.

Generally, this option appeals to older consumers as borrowing limits are restricted to younger applicants. Other factors which may determine your rate include a health check, credit history, and borrowing amounts. To get a personalised indication of what you might be able to release, and what rate you will be charged, speak to our equity release partners Mortgage Advice Bureau today. 

Speak to an expert equity release adviser today

Moneyfacts.co.uk's preferred equity release adviser is Mortgage Advice Bureau Later Life

Mortgage Advice Bureau Later Life Logo

Discover how equity release could improve your retirement finances.

Mortgage Advice Bureau Later Life offers plans from a panel of lenders. It only offers plans that meet the Equity Release Council's standards to give you extra protection.

Speak to an equity release specialist.

Call 0800 178 7901 or calculate how much you could release.

Telephone calls may be monitored or recorded to enable us to improve services to you.

Unless you decide to go ahead, the service is completely free of charge, as the fixed advice fee of £1,295 would only be payable on completion of a plan.

When can I use a bridging loan?

One reason why some want to release equity from their property is to fund the purchase of another home. Whether this be a buy-to-let property or holiday home, under the right circumstances you can also choose a bridging loan. To find out how this form of financing works, visit our guide. Otherwise, speak to Watts Commercial Mortgages to find the best bridging loan for you today.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.