Can You Release Equity With a Mortgage in 2024?

Equity Release with an Existing Mortgage Made Easy! Learn How to Navigate Through All the Financial Jargon You Need to Know Before Committing and Opting to Release Equity From Your Property. We Have the Guide for Equity Release With an Existing Mortgage…
  • Last Updated: 12 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • Equity release with a mortgage is possible but requires repaying the existing mortgage first.
  • The eligibility for equity release depends on age, property value, and mortgage balance.
  • Equity release reduces inheritance and may increase long-term debt due to accruing interest.
  • Alternatives to equity release include refinancing, downsizing, or negotiating payment plans.
  • Professional advice is recommended to navigate equity release options and understand their implications.

Are you considering releasing equity from your home or property, but unsure if it is possible with an existing mortgage?

According to a study done by LV=, 12% of older homeowners in the UK say they still had outstanding mortgage debt when they retired.1

If you are in this position, could equity release offer the desired financial relief?

In This Article, You Will Discover:

    Every Investor’s team of experts has 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.

    What Are Equity Release Loans and Existing Mortgages in the UK?

    Equity release loans provide cash based on home equity, while existing mortgages are current loans secured against the same property.

    What Is An Equity Release Loan In The UK?

    Equity release, available to those over 55, provides a way to access the value in your home.

    It's a useful option for managing living expenses or for funding home modifications to enhance accessibility and comfort in later life.

    In equity release, there are mainly two products: lifetime mortgages and home reversion plans.

    Lifetime mortgages involve a loan against your home, with repayment from the sale of your estate.

    This process, effectively releasing a loan secured by your property, allows you to benefit from your home's value without having to move out.

    Home reversion plans allow you to sell a share of your home in exchange for a cash payout or regular income, while continuing to live there.

    What Defines An Existing Mortgage?

    An existing mortgage is a loan that a homeowner is currently repaying, secured against their property.

    It's a financial commitment that typically spans several years, involving regular payments towards both the principal amount and interest.

    For those exploring equity release, an existing mortgage plays a crucial role.

    It must often be cleared using the funds released, impacting the amount available for other needs or desires.

    Who Qualifies and How Do You Apply for Equity Release with an Existing Mortgage?

    Homeowners over 55 with sufficient home equity can qualify, applying through a financial advisor after meeting specific lender criteria.

    Who Is Eligible for Equity Release with an Existing Mortgage?

    To be eligible for equity release with an existing mortgage, you must own a home in the UK and typically be over the age of 55.

    The amount of outstanding mortgage you have can affect your eligibility.

    Most lenders will require you to clear your existing mortgage with the funds released, either in part or full.

    How Can You Obtain Equity Release With an Existing Mortgage?

    Yes, it is possible to obtain equity release with an existing mortgage.2 

    However, you will need to repay your outstanding mortgage with the proceeds from the loan before you can access the remaining money. 

    Additionally, your equity release eligibility will depend on various factors such as your age, property value, and mortgage balance.

    Calculating Your Available Equity Release With an Existing Mortgage

    The equity release amount available with an existing mortgage is determined by calculating the difference between your property's current market value and the outstanding mortgage balance. 

    In conclusion:

    The amount you can release will depend on your age, the value of your property, and the amount of equity you have accrued.

    Equity release providers typically offer up to 60% of the property's value3 as a lump sum or regular payments.

    Applying for an Equity Release With an Existing Mortgage

    To apply for equity release with an existing mortgage, you will need to speak with an equity release provider or a financial advisor or broker specialising in equity release. 

    They will assess your eligibility and help you understand the terms and conditions of the equity release product. 

    It is recommended to compare offers from multiple providers before making a decision.

    How Does Equity Release Interact with Your Existing Mortgage?

    Equity release can be used to pay off an existing mortgage, often requiring the mortgage to be cleared as a condition of release.

    How Can Equity Release Pay Off an Existing Mortgage?

    Yes, you can pay off your existing mortgage with equity release. 

    The equity release provider will pay off your existing mortgage balance using the proceeds from the equity release loan, and the remaining funds will be given to you.

    How Equity Release Works With an Existing Mortgage

    How equity release with an existing mortgage works is not usually too complicated for the homeowner because you will have professional support throughout. 

    You will pay off your existing mortgage with the funds you receive from the equity release provider, which will occur in a single transaction. 

    This means that the amount you can release will depend on the equity you have in your property after your current mortgage has been paid off. 

    Note:

    If you still have a significant mortgage to repay, equity release may not be viable for you. 

    Additionally, if you decide to proceed with equity release, your new lifetime mortgage, if left unpaid, will accrue interest over time and must be repaid when you pass away or move into long-term care.

    What Happens to Your Mortgage When You Release Equity?

    When you take out an equity release, you will receive a lump sum or opt for a drawdown facility based on your property’s available equity. 

    Your existing mortgage must be fully settled as part of the equity release process. 

    Equity release providers require that they are the first charge on your property, leaving no room for additional or outstanding loans against your home. 

    What Impact Does Equity Release Have on Your Existing Mortgage and Future Financing Options?

    Equity release can pay off your existing mortgage, leading to a debt-free home ownership. However, it reduces the amount of inheritance you can leave and may affect your entitlement to means-tested benefits.

    Future financing options could be limited, as taking out an equity release plan reduces the equity left in your home.

    What If Equity Release Doesn't Cover Your Existing Mortgage?

    If you can not cover your existing mortgage using equity release, you will need to consider alternative options, such as refinancing your mortgage or downsizing to a smaller property. 

    Another option could be negotiating with your existing mortgage lender for a more favourable payment plan that fits your budget. 

    Speak with a financial advisor or broker to explore all the available options and make an informed decision.

    Is Equity Release with an Existing Mortgage the Right Decision for You?

    It depends on personal financial needs, estate planning goals, and willingness to reduce inheritance for heirs.

    Equity Release Pros and Cons With an Existing Mortgage

    The pros and cons of equity release with an existing mortgage include that it can provide additional funds and reduce the inheritance to leave to your heirs. 

    Considering the pros and cons is essential to the decision-making process.

    What you must know:

    Benefits of Releasing Equity With an Existing Mortgage

    The advantages of equity release with an existing mortgage include eradicating compulsory monthly mortgage repayments.

    Three potential advantages of equity release with an existing mortgage may include:

    • It allows you to access additional funds, which you can use to settle your existing mortgage.
    • The interest rates on equity release could potentially be lower than those on your existing mortgage.
    • You can use the released equity for any purpose, such as home improvements or supplementing your income.

    Downsides of Equity Release With an Existing Mortgage

    The disadvantages of equity release with an existing mortgage include that some of the funds you are eligible to unlock will need to be used to repay your mortgage. 

    Consider these three additional disadvantages:

    • Equity can be an expensive form of borrowing.
    • If left unpaid, it can result in increased debt due to accruing interest on the new lifetime mortgage. 
    • It would reduce the inheritance you can leave behind for your loved ones.

    Is Releasing Equity With an Existing Mortgage Suitable for You?

    If you want to find out if equity release with an existing mortgage is right for you, you will need to consider all aspects of your financial situation and run through your options with a financial advisor or equity release broker. 

    Whether it is right for you depends on your circumstances, financial goals, and the terms of your existing mortgage.

    Alternatives to Releasing Equity With an Existing Mortgage

    Some alternatives to equity release with an existing mortgage include downsizing to a smaller property, refinancing your mortgage, or taking out a personal or credit loan. 

    It is essential to consider the pros and cons of each option and consult with a financial advisor to determine which alternative is best suited to your individual circumstances.

    Commonly Asked Questions About Equity Release with an Existing Mortgage

    This section answers prevalent queries, helping homeowners understand the nuances of combining equity release with existing mortgages.

    Is Equity Release Possible With a Fixed-Rate Mortgage?

    How Can You Remortgage to Release Equity?

    How Can You Calculate Equity Release With an Existing Mortgage?

    Is Equity Release Feasible With Negative Equity?

    Is It Possible to Get Equity Release Without an Existing Mortgage?

    How Does Using Equity Release to Pay Off Your Mortgage Work?

    Can I Borrow More With an Existing Equity Release Lifetime Mortgage?

    Final Thoughts on Equity Release With an Existing Mortgage

    Before deciding, it is 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. 

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