Contributors:
Expert VerifiedKey Takeaways
- If you’ve got a mortgage but are eyeing equity release, you’ll need to pay off that mortgage first with the equity release loan. Just a heads up!
- The amount you can get your hands on might be less if you’ve still got a chunk of your mortgage to pay off. It basically eats into your available cash.
- Banks and lenders will take a peek at your property’s worth and what you still owe on your mortgage to figure out if you can go ahead with equity release and how much you can get.
- Thinking of using equity release to handle your mortgage in retirement? It could mean waving goodbye to those monthly payments, depending on the plan you pick.
- Definitely a good idea to chat with a financial advisor before diving in. They’ll help you see how using equity release to pay off your mortgage could play out for your wallet and future plans.
According to a study done by LV=, 12% of older homeowners in the UK say they still had outstanding mortgage debt when retired.¹
If you’re in this position, could equity release offer the desired financial relief?
This article explores the following topics, drawing on our expertise in the field:
Timebank’s team of experts have explored everything you need to know about equity release with an existing mortgage, including the advantages, disadvantages, and alternatives you should consider.
Join us as we navigate the world of equity release and how it works with an existing mortgage in place.
Request a FREE call back discover:
- Who offers the LOWEST rates available on the market.
- Who offers the HIGHEST release amount.
- If you qualify for equity release.
Can You Access Equity with an Ongoing Mortgage?
Yes. While many homeowners believe that an existing mortgage prohibits releasing equity, this is a misconception.
Depending on the amount of equity in the property and the outstanding mortgage amount, homeowners can potentially release equity.
However
Any amount released is typically used first to pay off the existing mortgage.
What Are the Options for Mortgage Holders?
For homeowners with an ongoing mortgage 2 prominent strategies, Lifetime Mortgage and Home Reversion, stand out.
While both offer unique opportunities to tap into a home’s value, their structures and implications vary, particularly for those with existing mortgages.
Here’s a closer look:
#1. How Does a Lifetime Mortgage Fit the Bill?
A lifetime mortgage allows you to borrow a portion of your home’s value.
Interest accumulates on the amount borrowed, but nothing is repaid until you either die or move into long-term care.
This option can be viable for those with existing mortgages, depending on your age and property value.
#2. Is Home Reversion the Way Forward?
With home reversion, you sell a part or all of your property to a provider in return for a tax-free lump sum or regular payments, while retaining the right to live in the property rent-free.
It has to be noted though
It’s a less common approach for those with existing mortgages, due to the complexities involved in part-ownership sales.
Laws & Standards
Ensuring that providers operate ethically and transparently is at the heart of the industry’s integrity:
- FCA’s Role in Safeguarding Your Interests: The Financial Conduct Authority (FCA)² regulates equity release providers and ensures they adhere to strict guidelines that protect consumers.
- Standards Set by the Equity Release Council: The Equity Release Council (ERC)³, a trade body for the industry, has set high standards to ensure that equity release products are safe and transparent for consumers.
How Does Your Current Mortgage Shape Your LTV
The Loan-to-Value (LTV) ratio, a key metric in the equity release industry, is influenced by your existing mortgage.
A lower outstanding mortgage generally allows for a higher LTV, giving homeowners the possibility to release more equity.
How Do Interest Rates Shape Equity Release?
Interest rates directly impact the cost and benefits of equity release.
A lower rate curbs the growth of debt on released equity, preserving more property value for future needs or inheritance.
Rate fluctuations can alter equity release product terms, and with compounded interest, minor rate changes can have a significant effect on the final debt.
Therefore
Understanding and monitoring interest rate trends is crucial for potential equity release candidates.
Common Questions
Are There Alternatives to Equity Release for Accessing Cash With an Existing Mortgage?
How Will Equity Release With an Existing Mortgage Affect My Beneficiaries?
Is It Possible to Move Homes After Taking Out an Equity Release?
Can I Repay My Equity Release Plan Early?
How Do I Choose a Reliable Equity Release Provider in the UK?
What if My Home Decreases in Value After I’ve Taken Out an Equity Release?
In Conclusion
Before deciding, it’s essential to consider the advantages, disadvantages, and alternatives to equity release with an existing mortgage.
Working with a financial advisor or specialised broker can help you understand the implications and make an informed decision that meets your individual needs and financial goals.
With the correct information and guidance, you can unlock the value of your home and enjoy a more comfortable retirement.
Equity release with an existing mortgage can be a complex financial decision. Still, it can also provide a valuable source of income in retirement or help you meet unexpected expenses.
