If you’re a homeowner with a mortgage of any description, be it a variable rate or a fixed-rate mortgage, you’re well-advised to keep an eye on your house value as if it soars you could be in line for some great mortgage deals and mortgage rates.
Home values can increase due to several factors over the years since your purchase. You’ve obviously made great financial decisions by having equity increases, so it’s important not to forget that your mortgage lender could now offer you a new and more beneficial deal and it’s a good idea to check where you stand.
Things like the economy naturally pushing house prices up, having made considerable upgrades to your home, or you’re fortunate enough to live in an area which has enjoyed a greater house price boom than the national average.
All of these things, plus of course paying off sizeable chunks of your mortgage (if allowed by your mortgage provider), can help you to have more equity in your home at the time of sale.
You can take advantage of your built-up home equity by:
Remortgaging and Capital Raising
If the equity value of your property has increased by a large amount, you can capitalise on your increase in equity by taking out a new mortgage – either by remortgaging to another lender for a higher mortgage amount, or staying with your mortgage provider and adding on to your existing mortgage. Effectively, you’re cashing on your home’s higher value and the equity within it, to get extra cash for yourself.
It involves raising additional funds, on top of your existing mortgage and you can use these funds for many different reasons, say a new car or consolidating debts. It would also be useful if you can carry out some home improvements and further boost your property value. The forced appreciation should be market-based so that you don’t end up having £400,000 in a street of £200, 000. It’s advisable to keep the value of your home within tolerable levels for that area.
Capital raising means that you increase your mortgage amount, subject to standard remortgaging ‘loan to value’ ceilings provided by lenders. The amount that you are allowed to borrow will depend on your existing mortgage, the current value of the property and what you’re borrowing the money for
Generally, lenders will insist you must still have 10 – 20% of equity in the property. Assuming you have increased the equity in your house, you could also leverage that to purchase another property.
One of the advantages of borrowing against the rising value of your property, is the lower interest rates that a mortgage will bring, as opposed to those on personal loans or credit cards. Most people use this home equity loan to settle large bills or expenses, home improvements or a new car – maybe those already paid with credit cards that they have built up. However, you will ordinarily take the debt over a longer period of time on a mortgage than a personal loan and so it’s important to look at the overall costs and benefits.
Sell It And Take The Profit Or Move To Something Bigger
If your home has dramatically increased in value, why not cash in by selling the property?
Depending on your personal and family circumstances, you can either save some money by downsizing to somewhere smaller and enjoying a few luxuries with the leftover capital, or you could use the extra equity to put down a big lump sum towards an even bigger dream home.
Having equity in your home is an exciting time that gives you multiple options, make sure you use it to your best advantage and ‘future-proof’ your next house move.