Can You Pay Off a Mortgage With Equity Release in 2024?

Are You Over 55 and Still Paying Off Your Mortgage? Could There Be a Safe Way to Secure Your Home for Life and Enjoy a Stress-Free Retirement? Read All About the Pros, Cons and Rules of Equity Release Here!
  • Last Updated: 02 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 can be used to pay off your mortgage by converting a portion of your home's value into a lump sum or regular income, which can then be used to clear your mortgage debt.
  • The advantages of using it to clear mortgage debt include eliminating monthly mortgage payments and potentially improving cash flow, while the drawbacks include reducing your estate's value and possibly affecting your entitlement to means-tested benefits.
  • It can help to fully repay your mortgage, as the funds raised can be used to clear any outstanding mortgage balance.
  • Equity release may be a suitable solution for mortgage repayment if you are over 55, own your home and are comfortable reducing your estate's value, but it's important to consider alternatives and seek professional advice before proceeding.
  • The process for using it to pay off a mortgage typically involves getting a valuation of your property, consulting with a financial advisor, choosing a plan, and then using the funds released to repay your mortgage balance.

Have you been wondering, "Can I use equity release to pay off my mortgage?"

According to a recent report by The Telegraph, one in six first-time buyers who took out a mortgage in December 2022 will still be paying off that loan into retirement.1

Are you facing the same outlook? Could equity release be an option if you don’t want to keep making mortgage payments when you’re in your sixties and seventies?

In This Article, You Will Discover:

    The team at Every Investor has researched the equity release market to present the pros and cons of these products and put together this guide on whether it may be worth it to use your property value to clear your mortgage.

    Find out now if repaying your mortgage in this way could work for you.

    Can I Use Equity Release to Pay Off My Mortgage?

    You can use equity release to clear your existing mortgage. As experts in finance and property markets, we assert that releasing equity from your home can help you repay your outstanding mortgage balance.

    This strategy can not only simplify your finances by consolidating debt but also potentially reduce your monthly outgoings, providing a more relaxed and comfortable retirement.

    However, it's important to consider that equity release does mean decreasing your property’s net worth. We recommend seeking expert financial advice to fully understand the implications.

    For instance, it could affect your ability to leave a substantial inheritance or even your eligibility for certain benefits. It's about making an informed decision that fits your individual circumstances.

    Are UK Retirees Still Paying Off Mortgages in 2024?

    UK retirees are still paying off mortgages in 2024, contrary to the traditional expectation of being mortgage-free in retirement.

    The prevalence of this financial obligation among the UK’s retired population is highlighted by a poll conducted by LV= in 2022, which indicates that approximately 1,5 million retired homeowners were still making mortgage payments at that time.2

    Why’s this happening?

    Factors such as rising property prices, longer mortgage terms, interest-only mortgages, and evolving retirement aspirations may contribute to the presence of mortgage debt among UK retirees.3

    Should I Pay Off My Mortgage Early?

    Whether you should pay off your mortgage early depends on your individual circumstances.

    Consider factors such as interest rates, financial goals, tax implications, and long-term housing plans. 

    Factors to think about include:

    • Whether you have more expensive debts to pay off first.
    • Whether you’re saving into a pension scheme.
    • Whether your family would be provided for if you passed away.
    • Whether you’d be better off saving your money.4
    • How much you’d be charged in fees or penalties for repaying your mortgage early.5

    Consult with a financial advisor or broker to assess the impact on your overall financial picture and make an informed decision.

    Factors to Consider Before Making a Decision

    Factors to consider before making a decision about using equity release to pay off your mortgage include eligibility, the financial implications, the long-term impact, your alternative options, and seeking professional advice.

    Here’s more information:

    • Eligibility: Determine if you meet the eligibility criteria for equity release, which typically includes being a homeowner above a certain age (usually 55 or older). However, there are additional criteria you’ll need to consider.
    • Financial implications: Make sure you understand the interest rates, fees, and potential impact on inheritance. 
    • Long-term impact: Consider the long-term impact on your finances and lifestyle, as accessing equity from your home reduces the value of your estate and may affect your eligibility for means-tested benefits. You also need to consider if you’ll need the equity release money in the future.
    • Alternative options: Explore other ways to pay off your mortgage. These could include renegotiating mortgage terms, making additional repayments, or downsizing.
    • Professional advice: Seek advice from an independent financial advisor or broker who specialises in equity release to ensure you understand the process, risks, and potential alternatives.

    How Equity Release Can Help You Pay Off Your Mortgage Early

    Equity release can help you pay off your mortgage early by giving you access to some of the equity in your home in the form of a lump sum. 

    This lump sum could then be used to repay your mortgage.

    Take note

    Equity release could be one way to address mortgage debt and potentially reduce financial strain by eliminating your monthly mortgage payments; however, you’ll have to discuss the potential risks and drawbacks with an equity release advisor.

    How Does Equity Release Work to Pay Off a Mortgage?

    Equity release to pay off a mortgage works according to a step-by-step process. 

    Here are the steps: 

    • Assessment: First, you’ll seek independent financial advice to assess your eligibility, discuss available options, and evaluate the suitability of equity release for your circumstances.
    • Application and valuation: If equity release is right for you, you’ll apply for the selected plan, and the provider will send a surveyor to conduct a valuation of your property to determine its current market value.
    • Approval and mortgage repayment: If your equity release mortgage is approved, the released funds will immediately be used to pay off your existing mortgage, effectively removing the mortgage debt and leaving you with the equity release loan. This will then become the new financial obligation secured against the property.
    • Equity release loan: The balance of your equity release loan amount will be released either as a large lump sum or as a smaller lump sum (with the rest placed in a drawdown facility for you to access when you wish). 

    The loan’s typically repaid only upon your death or when you move into long-term care unless you decide on voluntary repayments.

    How Long Does It Take to Repay Your Mortgage Using Equity Release?

    It can take up to three months to repay your mortgage using equity release, depending on how long the equity release application process takes.6 

    Once your application’s been approved, your solicitor can pay off your existing mortgage in full with a single legal transaction.

    The duration of this process will depend on how complex your situation is.

    What If You Don’t Have Enough Equity to Pay Off Your Mortgage?

    If you don’t have enough equity to pay off your mortgage, you won’t qualify for equity release.

    Repaying your existing mortgage is a requirement for anyone taking out equity release because your equity release lender will insist on having the sole charge over your property.

    Pros & Cons of Repaying Your Mortgage Early

    The pros and cons of paying off your mortgage early are essential to understand if you’re considering this option. 

    Let’s take a look at what you need to know

    Advantages

    The advantages of repaying your mortgage early using equity release include freeing yourself from monthly mortgage payments.

    Here’s a quick look at some more benefits:

    • Eradicating interest payments: By paying off your mortgage early, you’ll no longer need to worry about your monthly mortgage payments.
    • Achieving financial freedom: Being mortgage-free can provide a sense of financial security and freedom. If you don’t have a mortgage payment, you’ll have more money to put toward other aims, like saving for retirement, traveling, or investing.
    • Increasing your home equity: By paying off your mortgage early, you'll build home equity faster. That being said, if you choose equity release, you’ll actually reduce the equity in your estate.

    Disadvantages

    The disadvantages to paying off your mortgage early using equity release include the impact on inheritance and means-tested benefits.

    These are some drawbacks you’ll need to consider:

    • Opportunity cost: When you use a significant portion of your savings or property equity to pay off your mortgage early, you miss out on potential investment opportunities that could yield higher returns. If the interest rate on your mortgage is relatively low, you may be able to invest your extra funds in other assets, such as stocks or mutual funds, which could generate higher long-term growth.
    • Effect on benefits: Taking out equity release to repay your mortgage could make you ineligible for certain means-tested benefits. 
    • Effect on inheritance: Equity release will reduce the inheritance you’re able to leave to your heirs.
    • Overall cost: Equity release is a relatively expensive way to borrow money.
    • Limited opportunity for investment diversification: By allocating a significant amount of your property value towards early mortgage repayment, you may miss out on diversifying your investments across different asset classes at a later stage in life.

    It's important to consult an equity release broker or advisor about these pros and cons.

    Are There Alternative Ways to Repay a Mortgage?

    There are alternative ways to repay a mortgage that you should investigate before committing to equity release.

    Some options include:

    • Making overpayments to pay off the mortgage faster.
    • Remortgaging to a loan with better terms, possibly with lower interest rates, to save money and pay off your mortgage faster.
    • Renting out spare rooms to provide additional income to help repay your mortgage faster.
    • Selling your property and buying a cheaper one can free up cash to repay your mortgage.
    • Taking a payment holiday (offered by some lenders), can help if your are struggling with repayments in the short term, but it will extend the mortgage term.
    • Extending your mortgage term to lower your monthly payments (though this option will make you pay more in interest over the long run).
    • Getting an offset mortgage reduces the amount of interest you pay by combining your savings and mortgage, thereby offsetting the balance of your savings against your mortgage debt.
    • Using savings or investments if that’s an option.
    • Seeking help from family if they may be willing to provide a loan or gift to help repay your mortgage.

    Please note, that it's always best to seek advice from a financial advisor before making any decisions regarding your mortgage, as different options may be more or less suitable depending on individual circumstances.

    Common Questions

    What’s the Taxation Process for Equity Release to Pay Off a Mortgage?

    What’s the Maximum Amount of Equity I Can Release to Pay Off My Mortgage?

    Can I Use Equity Release to Pay Off My Interest-Only Mortgage?

    What Happens to My Pension and Benefits if I Use Equity Release to Pay Off My Mortgage?

    Are There Any Penalties for Paying Off a Mortgage Early Using Equity Release?

    What Are the Risks Involved in Using Equity Release to Pay Off a Mortgage?

    How Do I Compare Equity Release Providers for Paying Off My Mortgage?

    How Can I Use Equity Release to Pay Off My Mortgage?

    What Are the Pros and Cons of Using Equity Release to Clear Mortgage Debt?

    Conclusion

    If your are over 55 and aiming for mortgage-free homeownership in the UK, equity release could be an option to explore.

    It’s crucial to evaluate the risks, compare different providers, and seek independent financial advice to ensure the best outcome for your circumstances. 

    Understanding these factors will help you make an informed decision about using equity release to pay off your mortgage.

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