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What is equity?
If you’re thinking of remortgaging to switch to a better deal, it’s important to know how much ‘equity’ you have in the property. Figuring out how much equity you have might sound like it requires a lot of technical calculations, but it’s really very simple.
By understanding what equity is and how much you have in your property, you’ll be able to tell if you qualify for the best mortgage deals – which are often reserved for people with lots of equity – and it will be easier to search for remortgage deals that are right for your situation. Let’s take a look at everything you need to know.
Working out equity
Equity just means the difference between the value of your home today and the mortgage that you’ve still got left to pay off.
The first thing to do is to get your current mortgage balance – you should be able to get this by logging in to your lender online, from a recent mortgage statement or by calling your lender.
You’ll also need an idea of what your house is currently worth. Have a looking at the Land Registry website for what similar properties in your area have sold for recently. Or use a property website – such as Rightmove’s house price calculator.
Next it is time to subtract one from the other to work out your equity. For example, let’s say that your home is worth £100,000, the same as when you bought it. Your outstanding mortgage balance is £85,000. This means that your total equity is £15,000, giving you an 85% Loan To Value (LTV).
If the value of your house has gone up since you bought it then your equity will have grown. Let’s imagine that your home was worth £100,000 when you bought it but is now worth £120,000. If your mortgage balance is £85,000 your total equity is £35,000 and your LTV is 71%.
Your property might not have necessarily increased in value though – it could also have decreased in value. Going back to that property that was worth £100,000 when you bought it, let’s say that property prices in your area have fallen, meaning your home is now worth £90,000. This means you’d only have £5,000 in equity in your property and in this case your LTV is 94%.
Equity and remortgage deals
Knowing how much equity you’ve got is really useful when you’re thinking of remortgaging, as it helps you work out your loan to value (LTV). The best remortgage deals are often available for people with LTV below 60%. You may still be able to remortgage even if your LTV is 80% or over, but you’ll probably be offered less attractive interest rates. If you have plenty of equity in your property you can also consider releasing some of it when your remortgage (by taking a bigger mortgage) – if you need to fund home improvements, or other projects. Bear in mind that borrowing more may increase your monthly repayments and you should be sure that you can afford them before doing so – falling behind with the payments on your mortgage puts your home is at risk.
If you’re looking for a remortgage deal, it’s worth seeing what a few of the high-street lenders are offering. You could also use a mortgage broker like Ocean to find you a competitive remortgage deal, as brokers often get exclusive deals which aren’t available on the high-street – and one of these could be the best value for you.