A financial solution to combat a common problem
If you have an existing mortgage when you're retired or looking to retire, then you may be considering ways to reduce your monthly expenditure.
In 2022, 27% of homeowners used equity release to repay an existing mortgage* so equity release may be able to provide the financial support you need to give you the later life you deserve.
Equity release vs downsizing
Not so long ago, if you wanted or needed to pay off your existing mortgage in retirement but didn’t have the funds to do so, there would be very few other options than to sell your home and look for something cheaper.
That could mean leaving the property you love, moving away from family or breaking up friendships you’ve cherished for many years.
Through equity release, you can stay in your home for as long as you like and potentially still unlock the money you need to clear your existing mortgage.
All of the cash you release is tax-free, and whether you choose a lifetime mortgage or a home reversion plan, the two types of equity release, you can use the money to free yourself of existing monthly mortgage repayments and spend your disposable income on something more meaningful to you.
Or, even if you find yourself with a looming interest-only mortgage payment, equity release could give you the money you need to free yourself from your existing mortgage payments.
Taking out equity release may reduce your ability to downsize in the future as you may need to repay some of the release.
Using a lifetime mortgage to pay off your existing mortgage
A lifetime mortgage is similar to a standard mortgage in that it’s a loan secured against your home.
However, with a lifetime mortgage, you don’t have to make any monthly repayments unless you choose to. That’s because the loan, plus compound interest, is repaid when your plan ends – which is usually when you or the last remaining applicant passes away or moves into long term care.
With a lifetime mortgage, you also retain full ownership of your home and can stay there for as long as you like. That means you can pay off your existing mortgage and still live in the property you’ve worked so hard to make your own.
As well, with a drawdown lifetime mortgage, you don’t have to take all your money in one go. So, if you only need some of the cash that’s available, take a smaller initial release and then release more money when you need it (subject to minimum amounts). And you only ever pay interest on the funds you release. If you choose to make a drawdown, the funds will be subject to the prevailing interest rate at the time and the lender may have the option to withdraw the drawdown facility. The other lifetime mortgage is a lump sum lifetime mortgage, this is where you unlock some of the equity in your home as a single, one-off amount that you can use in a variety of ways.
See how much tax-free cash you could unlock from your home’s value through a lifetime mortgage today with our quick and easy online calculator.
Using a home reversion plan to pay off your existing mortgage
Unlike a lifetime mortgage, a home reversion plan isn’t a loan secured against your home.
Instead, you can sell all or part of your home in return for a cash lump sum. That means you're no longer the legal owner, and would become a beneficial owner with a guaranteed lifetime lease to stay in the home for as long as you wish and no monthly repayments to meet.
However, you can then use that tax-free cash raised from selling all or part of your home to pay off your existing mortgage, leaving you completely mortgage-free.
With a home reversion, a clearly defined percentage of your home remains yours for potential future use or as inheritance, unless you have sold the full value of your home. However, If property prices increase, you only benefit from the increase in value on the proportion of the property you retain. A home reversion company will not give you the market value of your home.
Mortgage Advice Bureau Later Life do not offer home reversion plans, only lifetime mortgages.
We’re here to help you make the right decision
We understand that using some of your home’s value to pay off your existing mortgage can be daunting. And you’ll likely have many questions.
That’s why we’re here to help you make the right decision for your needs and circumstances. And as industry experts, we know what’s best for you isn’t always equity release. Which is why we’ll never tell you it’s right for you unless we’re certain.
We also won’t charge you for our services unless you decide to go ahead. There’s no pressure to proceed; you’re in complete control and can take as long as you want to make your decision. But remember, we’re always here if you need some advice.
See how much you could release
Take the first step towards paying off your existing mortgage by seeing how much tax-free cash you could unlock from your home’s value with our equity release calculator. There’s no obligation to proceed, but it could tell you whether equity release is suitable for your circumstances.