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Can you use equity release to pay off your mortgage early?

Article | May 2024

If you’re over the age of 55 and still have a mortgage, you might be considering if it’s a good idea to pay it off early. As you approach retirement and consider what the transition to living from your pension might mean for your budget, considering where to save money may become important to you.

But how might you pay off your mortgage early? Well, equity release could offer you the potential to transform the value of your home into cash in the bank. With the most popular type of product, a Lifetime Mortgage, you could release equity to pay off your existing mortgage early.

In this article, we explain the benefits and drawbacks to doing so, as well as discuss what our team of expert advisers can do for you.

How can a Lifetime Mortgage be used to pay off a mortgage?

A Lifetime Mortgage works by borrowing from the value of your home now, without having to move in your lifetime. You could choose to release a lump sum, and your solicitor will then transfer the money directly to your lender once it completes. If there is any amount left over afterwards, they will then transfer that direct to you.

In this way, you will still have a debt against your home, but any payments are now entirely voluntary. So, you could gain a newfound control over your monthly budget. The amount borrowed, plus interest, will then only be repaid when the last homeowner dies or enters long-term care. Usually this can be achieved with the sale of the home.

You cannot have an equity release mortgage at the same time as another mortgage, so you will need to be able to clear the whole amount. This can be with the equity released but if you have other funds available to make up the difference then you may still be eligible.

Learn more about how this product works in our introduction to Lifetime Mortgages.

Should you pay off your mortgage early?

While you can pay off your mortgage in this way, it’s important to consider whether it’s actually the right choice for you. One of our expert advisers can help you to consider the pros and cons, but in the meantime, you should consider the following.

Do you have other debts?

If you have other debts, you should consider an order of priority in which to pay them off. Those that are due for repayment sooner might be the highest on the list, and you might want to consider making overpayments if you have any high interest borrowing and can afford to do so.

While equity release could be suitable for clearing unsecured debt in some circumstances, it is a form of long-term borrowing that wouldn’t be recommended for achieving short-term financial goals. If you do need to consider equity release for this reason, you should know that consolidating debts into a mortgage might mean that you pay more over the whole term than with your existing debt.

Are there early repayment charges to consider?

If you’re wanting to pay off your mortgage early, your lender might require you to pay an early repayment charge. If you have moved onto the standard variable rate, this may not apply. If you request a redemption figure from your lender, they should let you know what the cost to repay will be.

Therefore, you might have to pay off more than you currently owe should you release equity to clear your existing mortgage early. If you can afford to do so, it might be worth continuing to make payments on your mortgage until a time when no early repayment charges are due to clear it.

You can still meet with one of our advisers to evaluate what the right choice for you might be.

Is your interest-only mortgage term coming to an end?

You can also release equity to pay off an interest-only mortgage. You might want to be considering this if the end of your mortgage term is approaching and you don’t know how to repay the initial amount borrowed.

You could consider selling up and moving, but equity release might instead offer you the chance to pay off your mortgage and remain in the home you love instead.

Is your monthly budget likely to change?

If you can currently afford your regular mortgage payments and you don’t foresee any immediate change in your circumstances, then you might want to wait a bit longer before considering equity release to pay it off.

If you wait until you are closer to retirement, you may also be able to borrow more than you expected. This is because the amount available to you is determined by the value of your home and the age of the youngest homeowner.

One of our expert advisers can help you to explore the impact of reducing or stopping monthly payments on a mortgage by paying it off with equity release.

Why consider paying off your mortgage in this way?

According to unbiased, the average monthly mortgage payment currently works out at £1,441.36. While this may be higher than the payments that most older homeowners face, who retire with an average of £38,000 of debt according to 2023 research by LV=, it is still apparent that retiring with compulsory mortgage payments can put undue strain on your finances.

With equity release, you could choose to make no payments and let the interest roll up over time. However, you could also choose to pay the interest or even make ad hoc payments. This freedom allows you the ability to control how much of your budget gets allocated to equity release.

Some of the benefits of choosing equity release are:

  • You can choose how to make payments
  • You will never owe more than your home's value
  • And the interest rates are fixed for life

You should know, however, that equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. Your adviser can walk you through the features and risks and explain what this might mean for you.

How long might it take to pay off your mortgage?

How long it takes to pay off your mortgage will be influenced by the length of the equity release process. We have found that it usually takes between 8 and 10 weeks, although this will vary based on the complexity of your case.

Can you remortgage an equity release product?

While a Lifetime Mortgage is intended to do just that, last for your lifetime, it is not impossible to remortgage to a lower rate should one be available in the future.

It may not be as simple as a conventional remortgage, however, as there will be early repayment charges to consider. At Responsible Life, we offer an adviser for life. So, if the opportunity arises to move onto a lower interest rate in the future, they can help with choosing whether it’s the right option.

What can you do next?

So, if you’re considering paying off your mortgage with equity release, you should use the free online calculator today. In a few short steps, it will provide an estimate of the maximum amount that you might be able to release.

If you think that it might work for you, schedule a call with our friendly Information Team. They can answer your questions and book you in for a free initial consultation with an expert adviser. Your adviser will help you to evaluate if equity release is the right way to pay off your existing mortgage.  

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