There’s all sorts of reasons why people want to remortgage and borrow additional funds on top of their mortgage.
It may be to raise capital to buy a new property, it may be a remortgage to gift some money to family, a remortgage to pay off debts, a remortgage to put money into a business, a remortgage for a special purchase like a car or bike, or a remortgage to fund a special occasion like a wedding or big holiday.
Whatever the purpose, lenders all have a different opinion. Some remortgage lenders that allow for family gifts, don’t accept remortgages for debt consolidation.
Some remortgage lenders that accept business purposes, don’t allow people to remortgage for a holiday. Comparison tables are great for finding good rates, but poor at letting you know which lenders will accept you and which won’t.
This is why talking to experts who deal with the whole market is important, because although certain lenders may turn you away, others would welcome you with open arms.
Borrowing against equity
If you don’t want to move home or downsize, you can remortgage to borrow against the value contained in your equity. This works by taking out a new mortgage that is larger than your existing mortgage.
For example, if the value of your home has increased from £150,000 to £200,000 since you took out your old mortgage, remortgaging enables you to cash-in on this increase in value without moving.
If you owed £100,000 to your existing mortgage lender, but you get a new mortgage of £120,000, you would be left with £20,000 extra, although there are various fees that will eat into that (the arrangement fee of the new mortgage for instance).
By remortgaging for a higher value you would have ‘sold’ £20,000 of your equity, as you would now only own £80,000 of the value £200,000 of your home, rather than £100,000.
Because of the increase in value of the home, your loan to value ratio has still dropped, but you are borrowing and paying interest on a higher amount.