Need to Borrow More Money? Equity, or Not Equity, that is the Question.
Are you struggling to decide if borrowing more money or holding on to your equity is the best choice today? According to recent figures published by UK Finance, many homeowners are borrowing more money when they move to another mortgage deal. Cited by the consumers’ association Which?, UK Finance’s data indicates a 9% year on year increase in additional borrowing, with 16,810 homeowners borrowing an average of £55,700 extra when they remortgaged in March 2019.
How can People Borrow More Money?
Increasingly, homeowners are choosing to use the equity in their house to get more money when remortgaging. Equity is the value that you actually own of your property. For example, if your home is worth £300,000 and your mortgage is £200,000, then your equity is £100,000. Equity increases as you repay your mortgage, and/ or if the value of your property increases.
One way to access the equity in your property is to sell your home. However, if you do not want to move to a new house, you may be able to remortgage and borrow against your equity. For example, if your property’s value has risen from £300,000 to £350,000, you could remortgage for the higher amount.
Is additional Borrowing a Good Idea?
This will depend on your financial circumstances and your personal situation, such as if a significant financial event is on the horizon:
- Hoping to make home improvements?
- Planning for a financially large event such as a wedding or overseas holiday?
- Is a family member struggling financially and you would like to help?
- Do you struggle to make ends meet each month and releasing equity would also release pressure?
If the answer to any of those questions is yes, then additional borrowing could be a good idea.
Mortgage Advice Services suggests …
- If you would like to remortgage, consider waiting until the end of your fixed term deal. Most mortgage packages carry an early repayment charge, which may be as high as 5% of your loan
- Weigh up if you need more money now rather than later down the line. Additional borrowing may involve increasing your monthly mortgage payments or extending the term of your mortgage. The latter option will likely mean you pay more interest over time. However, if your short-term financial position is more stretched than you foresee your longer-term financial position to be, this can still be a sensible option
- Be aware of the risks. For example, a fall in house prices could eat away at your equity if you’re borrowing at a high loan to value
- Consider all the options. Depending on your credit profile and borrowing status, you may be able to raise money without additional borrowing on your mortgage. For example, you may be in a position to take out a personal loan, or a credit card with a long-term 0% purchase offer
- Think about how much money you need and how much you could borrow. You will need to know how much equity you actually have, and how much, if any, your property value has increased by. Your mortgage lender can give you a valuation, but this may carry a charge. It may be possible to get a free valuation from a different lender, so it’s worth looking around
- Many banks and building societies offer free online calculators to give you an idea of how much you could borrow
- Remember – your home could be repossessed if you do not keep up with your mortgage repayments
Deciding on whether additional borrowing would be sensible for your financial and personal circumstances can be a difficult choice. That’s where expert advice can help! Call Mortgage Advice Services today on 01332 257087, for friendly, impartial guidance and recommendations on a remortgaging deal that suits your needs. For all other information please visit our website here.
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