Understanding your loan to value (LTV) ratio
Before you decide whether to release any equity from your home via a remortgage, you'll need to assess what the impact could be on your loan to value ratio (LTV).
The LTV ratio is the amount you're borrowing on a mortgage relative to the overall value of a property. As a general rule, the higher the LTV, the higher the rate of interest you could be charged when applying for a mortgage (or negotiating a re-mortgage).
Let's say you bought your property for £200,000 with a £20,000 deposit. Your deposit is 10% of the value and your mortgage, at £180,000, is 90%. So your LTV is 90%. Assuming your property value stays at £200,000, and you pay off £20,000 of debt on your repayment mortgage over, say, five years, your total equity would be £40,000. So, your LTV ratio would decrease to 80% (because your mortgage debt would now be £160,000). Your LTV ratio would decrease further if your property had increased in value over the same five-year period.