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?

EveryInvestor’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 Is Equity Release and How Does It Work With Existing Mortgages?

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

So, what is equity release?

What's An Equity Release Loan In The UK?

Equity release provides a way to access the value in your home without needing to sell or move out. It is particularly useful for managing living expenses, funding home improvements, or covering other financial needs in later life.

The two main types of equity release products are:

1. Lifetime Mortgages:
   • A loan secured against your property.
   • Interest is typically added to the loan over time, meaning no monthly repayments are required.
   • The loan and accumulated interest are repaid when the last homeowner moves into long-term care or passes away.
2. Home Reversion Plans:
   • You sell a percentage of your home to a provider in exchange for a lump sum or regular income.
   • You retain the right to live in the property, usually rent-free, for the rest of your life.

Both options allow you to benefit from your home’s value while still residing in it.

What Defines An Existing Mortgage?

An existing mortgage is a loan secured against your property that you are currently repaying. These loans typically involve regular instalments towards both the principal amount and interest over several years.

With equity release, the existing mortgage becomes a critical factor because the funds released must cover the outstanding debt before any cash is made available to you. This ensures that the property can fully secure the equity release plan.

How Does Equity Release Work With an Existing Mortgage?

If you already have an existing mortgage, equity release can help, but the process involves specific steps:

• Eligibility: Your eligibility for equity release will depend on factors such as your age, property value, and the amount of your existing mortgage. A financial advisor or equity release specialist can guide you through this process.
• Clearing the Mortgage: Any outstanding balance on your mortgage must be repaid. The funds from your equity release plan are often used for this purpose.
• Accessing the Remaining Funds: After your mortgage is cleared, the remaining equity can be used as you wish—whether for daily expenses, travel, or home improvements.

How to Release Equity from Your Home: Step-by-Step Guide

Releasing equity from your home involves choosing the right product, applying through a provider, and getting your property valued.

Start by exploring equity release options, such as lifetime mortgages or home reversion plans, to decide which best suits your needs. Then, contact an adviser to guide you through the application process and ensure everything aligns with your financial goals.

Once you’ve chosen a provider, they’ll arrange for a valuation of your property to determine how much equity you can release. After the paperwork is finalised, you’ll receive the funds, which can be used for anything from home improvements to supplementing your pension.

Is Releasing Equity From Your Mortgage the Right Choice 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.

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 and garden 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 mortgage. 
• It would reduce the inheritance you 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. 

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 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.

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

Homeowners over 55 with sufficient home equity can qualify, and apply 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 in full.

How to Calculate Equity Release with an Existing Mortgage

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. 

How Does Equity Release Interact with Your Existing Mortgage?

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

How Can Equity Release Repay an Existing Mortgage?

Yes, you can repay your existing mortgage with equity release. 

The equity release provider will repay your existing mortgage balance using the proceeds from the equity release loan, and the remaining funds will be passed onto 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. 

What Happens to Your Mortgage When You Release Equity?

When you take out 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 repay 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 Happens If Equity Release Doesn't Fully Repay Your 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 available options and make an informed decision.

What Happens to My Existing Mortgage When I Take Out Equity Release?

Yes, it is possible to release equity from your house even if you have an existing mortgage. The process allows you to access the value tied up in your property while maintaining ownership and residence.

With equity release, monthly repayments on your current mortgage would typically stop, providing relief to your budget. However, the new equity release loan will accrue interest over time and is usually repaid when your property is sold, either after you move into long-term care or upon your passing.

It’s important to note that equity release loans are secured against your property value, and many providers offer a "no negative equity guarantee," ensuring the repayment amount will not exceed the sale price of your home.

Seeking professional advice is essential to fully understand the financial and legal implications of combining equity release with an existing mortgage, helping you make an informed decision.

How Much Equity Can I Release from My Property? Key Factors to Consider

The amount of equity you can release depends on your age, the value of your home, and the type of equity release plan you choose.

Typically, the older you are, the more equity you can unlock, with most providers offering higher percentages to those in their late 70s and 80s.

Your home’s current market value also plays a significant role. A property valuation will determine how much is available to release, with higher-value homes offering more equity.

Factors such as your health may also increase the amount you can access through some plans.

Commonly Asked Questions

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

Final Thoughts

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. 

Receiving equity release advice from a reputable source can provide clarity on the potential risks and rewards associated with this financial option.