Raising capital & releasing equity

There are 3 ways to raise capital against the equity in your property and they are:

• Further Advance

  A further advance is when your existing lender advances you further money on your mortgage.

  The pros are that a Further Advance usually requires less underwriting and removes the need for a valuation of your property or solicitors involvement meaning the funds can be released much quicker than a remortgage or second mortgage.

  The cons are that a Further Advance is usually leant on different terms to the mortgage resulting in a higher interest rate than your mortgage.

  You may also be tied in to this element of the borrowing at a different time period to the original mortgage account which may mean there are early repayment charges on this element of the borrowing after the early repayment charges on your main mortgage account have expired.

• Remortgage

  A remortgage would mean borrowing both the original mortgage amount plus the additional funds required with a new lender.

  The new lender would repay your existing mortgage provider and then release the additional funds to you.

  The pros of remortgaging are that you may be able to secure all of the borrowing at a lower total cost and that the terms of the remortgage can be adjusted to suit your needs at the time.

  The cons of remortgaging are that the new mortgage will be fully underwritten and an up to date valuation will need to be carried out (potentially at your expense). Solicitors involvement will also be required (potentially at your expense) meaning that a remortgage is usually a longer process than a further advance.

  You may also have to pay a penalty to your existing lender to move your mortgage away. If so, this cost should be factored in to any decision you make.

• Second Mortgage

  A Second mortgage could be considered a happy medium between a further advance and a remortgage for raising capital.

  The pros are that typically there are no upfront costs to you. You would not have to pay any applicable penalties to your mortgage lender and there are no solicitors involved meaning the funds are usually released faster than a remortgage and the lending criteria is generally more flexible than a further advance or remortgage. Most second mortgages do not have any early repayment charges meaning they can be amalgamated at with the main mortgage at a later date without incurring any early repayment charges

  The cons are that the completion fees are likely to be higher than a further advance and the overall costs may be higher than a remortgage or a further advance.

Each of the above have their pros and cons. It may be that you are only eligible for one or two of the options above so if you are considering raising capital then it is important that you explore and understand all the options and related costs of those options available to you to before making an application.