Should You Use Equity Release to Pay Off My Mortgage?
Equity Release to Pay off A Mortgage
Did you know that there’s a way to head into retirement mortgage-free, and you can benefit from tax-free cash?
Equity release is an exciting retirement product that could give you the best of both worlds.
But, like with all financial deals, there are some pitfalls that you must be aware of.
With that considered, is paying off your mortgage using equity release a good idea in 2022?
Through this article, you’ll learn:
- If you can use equity release to pay off your mortgage.
- The process of using equity release to pay off your mortgage.
- If it’s a good idea to release equity in May 2022.
Our EveryInvestor team is passionate about retirement finances, helping older homeowners find the best solution for their financial needs.
Therefore, we’re constantly keeping our fingers on the pulse of the industry, bringing you the latest equity release news.
Here’s what we discovered about paying off a mortgage with an equity release.
Before You Start Reading….
Let’s See How Much You Can Release 👇
What Is Equity Release?
Equity release is a financial product that’s designed for UK-based homeowners to unlock the cash tied into their property wealth.
Households in the UK are sitting with a collective of £1 trillion in home equity, and older homeowners now have the opportunity to access their share through equity release.
It’s a loan against your primary residence that allows you to unlock tax-free cash that only needs to be repaid when you die or enters permanent care, usually from the sale of your home.
How Does Equity Release Work
With equity release, the home serves as collateral against your loan, with the lender benefiting from inflation1 and compound interest.
Your family will use the money from the sale of your home to repay the total loan amount. Any additional equity will go to your estate.
Thanks to the Equity Release Council’s ‘no negative equity guarantee’, if your debt is in the red, it will automatically be written off.
Should I Pay Off My Mortgage Early?
Yes, if you have the means to do so, you should pay off your existing mortgage, especially if you’re reaching retirement, where you’ll likely have a reduced monthly income.
Once you’ve paid off your existing mortgage, you will no longer have to make any monthly repayments, freeing space in your budget for the things that matter most to you.
Retirement should be a carefree time when you no longer have to worry about costly monthly payments and focus on your passions.
Although most people would like to retire and enjoy their golden years, many older homeowners must pay off mortgages longer than anticipated.
Equity release allows you to avoid financial worries that might otherwise linger longer than you want them to.
Why Consider Equity Release to Pay Off Your Mortgage?
The interest rates on equity release in 2022 remain highly competitive, meaning that equity release might be cheaper than you think.
For this reason, more homeowners over 55 are choosing equity release to pay off their mortgage, boosting retirement income.
The Pros & Cons of This Approach
- You can retire without mortgage payments.
- Additional equity in your home can be used in any way you wish.
- The money you release is tax-free.
- No payments are compulsory, but there are optional payment plans.
- You run the risk of unlocking more equity than you need to, paying unnecessary compound interest.
- Equity release can affect the benefits you can access.
- You’ll drastically reduce the amount of equity available in your property.
- Your family will receive less of an inheritance.
How Much Will Equity Release Cost Me?
The cost of equity release generally sits between £1,500 and £3,000.
This money will cover the cost of advice, lender’s fees, completion fees, surveyor’s fees, and the cost of a solicitor.
Some lenders offer free advice, a free valuation, or no completion fees.
Additional costs include possible early repayment charges if you end your plan early, and of course, compound interest.
How to Pay Off a Mortgage with Equity Release
If you want to use equity release to pay off your mortgage early, feel free to use the calculator on this page to obtain an estimate of the tax-free cash that you may unlock.
If the amount is less than your outstanding mortgage balance,
You’ll have to decide whether you can make up the difference by other means since it’s a requirement of equity release that you pay off any existing secured debt on your property.
If you’re not sure how much money you’ll need, requesting a mortgage redemption statement from your lender is a smart idea since paying it off early may incur early repayment costs.
If you decide to go ahead, your solicitor will transfer the redeemed equity to your mortgage lender in a single legal transaction, clearing your current mortgage. Any funds that remain after this will be sent to you.
Can You Take Out Equity Release to Pay Off an Interest-Only Mortgage?
Yes, some consumers have discovered that replacing an interest-only mortgage with an equity release product at the end of the term is a viable alternative for repaying a loan with no prepayment penalties.
This will only be done if the agreed-upon repayment vehicle has underperformed.
How Long Does It Take to Clear Your Mortgage Using Equity Release?
The whole equity release process generally takes 3 months on average, but this will vary depending on the intricacy of your situation.
Once you’ve completed and released equity from your property, your solicitor can ensure that your current mortgage is fully paid off with a single legal action.
Alternatives to Paying off Your Mortgage with Equity Release
Before deciding if equity release is the best course of action to repay your mortgage, you must be aware of all the available alternatives.
Equity release is a massive decision that shouldn’t be taken lightly.
Unsecured Personal Loan
If you want to borrow a modest amount and make regular payments, an unsecured personal loan2 may be a cheaper option.
However, don’t use an unsecured personal loan to pay off your mortgage since the interest you’ll pay will almost certainly be far greater than your mortgage rate.
Your lender can extend the term of your mortgage for another 5 or 10 years if you haven’t paid off your mortgage by the time you retire.
However, keep in mind that some lenders may have a maximum age limit of 65 years.
Another alternative is to switch mortgage providers before the end of your present mortgage term.
Remortgaging with a lower interest rate and improved conditions might help you save money on monthly payments by freeing up cash for other expenses.
Downsizing is a way to access your hard-earned cash without having to worry about debt repayments during or after your life.
However, it does come with the stresses of moving, especially if it means leaving your beloved family home.
Why Do People Use Equity Release?
If the value of your property has risen over time, equity release allows you to access some of that money for supplementary retirement income rather than leaving everything to your beneficiaries.
With equity release safer and cheaper than ever, more and more people turn to these fantastic retirement products to gain access to tax-free cash.
Find Out How Much Money You Could Release from Your Home
Using our free equity release calculator, you can discover an accurate estimate of the amount of money tied into your home.
How Old Must I Be to Release Equity?
To release the equity from your home, you must be at least 55. Home reversion schemes are usually available for homeowners aged 65 and older.
How Long Will It Take to Release the Equity from Your Home?
The entire equity release process will usually take 4 to 8 weeks.
Should I get advice from a financial adviser or a mortgage broker?
When it comes to equity release, your best bet is to speak to a whole-market financial adviser.
If you want to reduce your costs and gain access to money, then equity release could be the answer you’ve been looking for.
Contact your financial advisor today to find out if paying off your mortgage with equity release is a good move for your circumstances or if you should consider the alternatives.
How Much Can You Release?
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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.