1)Release cash scenario. If you have owned a residential home for yourself for a number of years then you have considerable equity in that home. Why because property values have increased many folds over the past 50 years and so has yours. Assuming the original purchase price of ?80,000: its current valuation may well be ?200,000. There is therefore ?120,000 extra equity which can be released by the refinancing process. Applying a loan to value formula of 85%, then effectively there is ?90,000 to be released.



How do you release that equity? There are a number of options available to the extra equity owner. The existing lender can lend you more money against the new valuation. There are the valuation fees and additional legal costs to be met and money can be released quite quickly.

The other equal valid method is to replace your existing lender with a new lender altogether. The new lender will simple refinance the whole property; pay the existing lender off, and will take a legal charge on your property to secure his money. In most cases, the borrower is offered a better deal by the new lender. An example of a better deal is lower interest rate for a period of two years as well as the new lender offering to meet the legal and valuation costs.

2)Release an asset by refinancing. In certain situations entrepreneurs will put together a deal by using other assets to secure a portion of the borrowing in relation to a purchase. This is commonly found in commercial deals because commercial property investment carries a higher initial deposit in comparison to a residential investment. A re-evaluation two years post purchase of the property and taking into account the new value can help to release the legal charge on other assets. An actual example of a situation for the purposes of illustration follow:-

A pub/restaurant was bought by Mr & Mrs Bush for ?800,000. The lender agreed to finance the deal by securing 70% against the property namely the pub. Itself. The remaining 30% (?240,000) was secured against another property for a period of 2 years. Two years on and some cosmetic refurbishments later, the pub/restaurant was re-evaluated for current value. The new value came to ?1.2 million. The lender was able to refinance the deal and secure his money against the pub/restaurant. The charge on the additional security was removed so that property became totally unencumbered.

In conclusion, refinance offers a number of advantages for the borrower. Extra equity can be released from a residential property relatively easily. In most cases, the cost of the total borrowing can be lowered by lower initial interest rates. The refinance offers a low cost borrowing at the rate of the mortgage loan itself.

Refinance option enables borrowers to use short term measures to facilitate a purchase like the example above of Mr & Mrs Bush and their pub/restaurant acquisition. Refinance for leverage for whatever you want and these very simple strategies discussed in this article will help you achieve your end goal.