Using Equity Release to Pay Off Your Mortgage


The increasing cost of living is just one of many reasons why more and more UK homeowners are releasing equity from their homes in later life.

If your mortgage interest rate has increased, along with your utility bills, you may be wondering, ‘can equity release be used to pay off a mortgage and is it right for me’?

Before we dive in to answer that question, let’s take a quick look at what equity release is.

What is equity release?

Equity release allows UK homeowners aged 55 and over with a property worth at least £70,000 to access some of the equity tied up in the value of their home. It is also known as a lifetime mortgage and is a loan secured against the value of a property. Unlike a residential mortgage, there is no obligation for borrowers to make any repayments. The loan plus interest is typically repaid when the homeowner passes away or if they go into long term care and their property is sold.

Can I pay off my existing mortgage early with equity release?

The short answer is yes, it is possible to take out an equity release plan to pay off your existing mortgage. In fact, releasing equity to pay off a mortgage is one of the most popular reasons why homeowners use equity release.

If you’re approaching retirement, or plan to reduce your working hours, then being able to pay off your mortgage early using equity release can provide peace of mind and financial stability. 

Using equity release to pay off a mortgage can allow homeowners to:

  • Continue living in their home without the need to move or downsize
  • Reduce their outgoings and increase their disposable income
  • Retire sooner than they had anticipated
  • Maintain their status as a homeowner
  • Enjoy a more comfortable retirement 

While some homeowners can use equity release to pay off their mortgage early, others have an interest-only mortgage that is coming to the end of term and is due to be repaid very soon…

Can I use equity release to pay off an interest-only mortgage?

According to UK Finance, in 2020 interest-only borrowers owed on average £104,000. This can be a very stressful situation for people to be in and many do not know where to turn or how to repay what they owe.

Thankfully equity release may provide a viable solution for many homeowners with an interest-only mortgage. By releasing equity from their home borrowers can pay off the outstanding balance that is due whilst keeping their home.

Here’s an example of how it works…

How does equity release work when paying off a mortgage?

To understand how equity release could help you to pay off your existing mortgage, take a look at this example:

You took out an interest only mortgage 25 years ago of £100,00 to purchase your home.

Taking various factors into account such as your age, health, lifestyle and the value of your property, you can borrow up to 55% of the value of your home. 55% of £375,000 is £206,250*.

If you wanted to, you could borrow £100,000 to repay the outstanding mortgage. Or, you might decide to take more than £100,000 so that, not only can you repay your existing mortgage, but you can use the additional funds for other things such as:

  • Clear credit cards and personal loans
  • Make home improvements
  • Help your children or grandchildren get onto the property ladder
  • Supplement your retirement income

Ultimately, you can choose to spend the money however you wish, but there are several things to bear in mind.

Things to consider

  • Equity release is not suitable for everyone and you must seek financial and legal advice from qualified professionals before you can unlock some of the equity from your home
  • When looking for specialist equity release advice, we recommend that you use a company who is an approved member of the Equity Release Council, you can find a list of approved members and learn more about the Equity Release Council here
  • An equity release plan is a loan secured against the value of your home which must be repaid and will reduce the value of your estate

If you would like to speak to one of our Equity Release Advisers, you can find our contact details here. We look forward to hearing from you and answering any questions you might have.

*These figures are for illustrative purposes only. Equity release is dependent on individual circumstances.

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