When planning a large purchase or home improvements, we often consider taking out a personal loan or credit card. If you own a property, there could be a better way to raise the funds you need. With a Capital Raising Mortgage, you can release some of the equity in your home.
What is a Capital Raising Mortgage?
Releasing capital from your property is normally completed as a remortgage with additional borrowing.
For example, if you own a property worth £300,000, with an outstanding mortgage of £100,000, you have £200,000 of equity in the property. Let’s pretend that you want £50,000 to build an extension and buy a new car. Adding the existing outstanding mortgage to your new requirements would give a new total borrowing of £150,000.
Most lenders would be happy to consider this request and so, assuming your current mortgage permits it; you can remortgage with your existing lender or change lenders if they offer a more competitive rate.
What is the Process?
The first step to take is to review your current mortgage deal. Are you tied into the current mortgage? Do you have any early repayment charges? If you need to remain with your current lender, you can avoid these charges by applying for a Further Advance. A Further Advance would provide an additional loan with the same lender while keeping the original mortgage in place.
If your current mortgage is on a standard variable rate or you are unencumbered (mortgage-free), you can look at different options from other lenders.
What Can a Capital Raising Mortgage be Used For?
Lenders do have some restrictions on what the additional borrowing can be used for, but most lenders will generally consider;
- Home Improvements – New kitchen, extension, loft conversion, landscaping
- Refinancing other debt such as credit cards and loans to make repayments more manageable
- Holiday and travel experiences
- Purchasing another property
- A gift to children to help them with a deposit for their home
- Divorce/separation to buy out the partner so you can stay in the property
- University and School fees
If you are planning to use the funds to pay off existing debts, it is important to consider that you are extending the borrowing over a longer period. In the short term, you could reduce the monthly payments, but in the long term, you may have paid a lot more in interest.
Most lenders will not allow the funds from a Capital Raising Mortgage to be used for buying stocks and shares or investing in business start-ups. These are considered high-risk investments that lenders will not support.
Could a Capital Raising Mortgage be Right For You?
If you own a property that has equity and you require funds for a large purchase or experience, it is an option worth exploring.
As experienced mortgage brokers, Elementary Mortgage Solutions can guide you through the options most suited to your situation. We can review the market to identify the best possible deal to secure the equity required.
If you are looking to raise funds for debt consolidation, we will look at this in detail to make sure it does make financial sense over the long term, as you would be taking unsecured debt and attaching it to your home which could be repossessed if you don’t keep up with repayments.
If you would like to know more about releasing equity from your home, please get in touch with our team today.
Your home could be repossessed if you do not keep up repayments on your mortgage.
If you are considering consolidating existing debts, you should be aware that doing so through a capital raising mortgage may extend the life of that debt. In turn, this may increase the total interest payable.