Using Equity Release to Pay Off Your Mortgage

Are You Looking To Pay Off Your Mortgage Using Equity Release?
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
Are You Considering Equity Release to Pay off a Mortgage? Discover How Long the Process Takes & the Interest Implications. We Answer All Your Burning Questions Right Here.

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Are you dreading mortgage payments deep into your retirement and are considering equity release to pay off a mortgage?

With only 4.6% of UK-based homeowners still paying off their mortgage over 65, you don’t want to be in the minority.

Luckily, there might be a solution to this problem. As one of the leading retirement industries in the UK, equity release grossed over £4.8bn pounds in 2021.

Perhaps you could get a slice of the pie in 2022

Through following this article, you’ll discover:

  • The implications of releasing equity from your home.
  • If equity release is enough to settle your mortgage.
  • The costs involved with equity release.

SovereignBoss is proudly one of the leading equity release websites in the UK, and we’ve spent our 10,000 hours analysing the triumphs and pitfalls of the industry.

Here’s what we’ve discovered about equity release and paying off your mortgage in 2022.

Let’s find out now!


What’s Equity Release & How Does It Work?

Older homeowners use equity release to tap into a portion of their property wealth.

It allows you to access tax-free money that must be repaid when you die or enter permanent care, usually from the sale of your property.

You can receive a lump sum, set up a cash facility, or opt for a monthly income.

The house acts as collateral for your loan, with the lender gaining from inflation and compounding interest.

The money from the sale of your home will be used to repay the entire loan amount.

Any extra equity in your property will go to your heirs.

If your debt is in the red, it will be written off automatically thanks to the Equity Release Council’s ‘no negative equity guarantee.’

Is It Worth Using Equity Release to Clear Your Mortgage?

Yes, it could be worthwhile to use equity release to repay your mortgage.

While there has been a steep increase in the interest rates throughout 2022, the rates in the lifetime mortgage market still remain at lower levels at the bottom end of the market than when gilts were last at comparable levels in 2014, which means that equity release may be less expensive than you think.

Consequently, thousands of pensioners over 55 opt for equity release to pay off their mortgage costs, sometimes allowing them to retire earlier.

Is It Advisable to Repay My Mortgage Early?

It is advisable to pay off your existing mortgage early if you have the means to do so, especially if you’ll be retiring soon.

Equity release enables you to avoid financial concerns as you don’t need to repay any part of your loan in your lifetime.

Pros of This Approach

  • You have a chance to retire without being concerned about mortgage repayments.
  • Unlike with a traditional mortgage, no regular repayments are required, and the loan only expires when you pass on or enter long-term care.
  • You can unlock just enough to repay your mortgage, or you can release the maximum equity in your home to use in any way you desire.
  • Equity release offers tax-free cash.

Cons of This Approach

  • Equity release will impact your access to means-tested benefits.
  • Your family will receive a lower inheritance as you reduce the value of your home.
  • You run the danger of overpaying compound interest if you unlock more cash than you need.

What Does Equity Release Cost?

The cost of an equity release may vary from £1,500 to £3,000. This is for the cost of advice, lender costs, completion fees, surveyor costs, and legal fees.

What’s great is that some lenders provide free advice or a free appraisal.1

However, don’t be fooled by fancy deals. Instead, look at your potential plans holistically.

Furthermore, there may be additional fees to consider, such as a fine if you decide to end your plan early and, of course, compounded interest if you opt for a lifetime mortgage.

How to Use Equity Release to Pay Off Your Mortgage

The first step is to use our free equity release calculator to estimate the amount of cash available in your home.

The final calculation will be subject to a detailed home valuation.

With equity release, you’re obligated to repay your mortgage.

Therefore, if the cash available is less than your outstanding mortgage, it’s likely that you won’t qualify for an equity release mortgage.

If you’re not sure how much equity you’ll need, ask for a mortgage repayment statement from your lender since paying it off before the expiry date may result in early repayment penalties.

If you proceed, your lawyer will execute a single legal transaction with your mortgage lender and clear your existing mortgage by transferring the redeemed equity.

Any funds that are left over after this will be sent to you.

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

Yes, you can opt to release equity to pay off an interest-only mortgage.

The percentage of your home you can get with equity release rises gradually with age.

During the equity release application process, you will continue to make interest payments on your interest-only loan.

However, the lender’s solicitors will repay your interest-only mortgage when your application is completed.

How Long Is the Entire Process?

The whole equity release process, including repaying your mortgage, is usually up to 3 months.

However, the process can take as little as 4 weeks, but this will be case-to-case dependent.

Your solicitor2 will facilitate that your current mortgage is fully paid off with a single legal action when the equity has been released from your property.

What Are the Alternative Ways to Repay Your Mortgage Early?

If you’re considering equity release as a method to pay off your mortgage, you should be aware of all the different options.

Equity release is a significant decision that shouldn’t be rushed.

Here’s some options:

Downsizing to a Smaller Home

As the most popular alternative to equity release, downsizing gives you a chance to enjoy your hard-earned cash while living on a property that’s smaller and lower in maintenance.

Furthermore, you can buy your property in cash, so there won’t be any monthly payments to worry about.

Remortgage Your Current Property

Another option is to switch mortgage lenders before the end of your current mortgage term.

Remortgaging with a cheaper interest rate and better terms might help you save money on monthly payments.

Extending Your Mortgage Terms

If you haven’t settled your full mortgage before you retire, your lender might be willing to extend the loan’s term for another 5 or 10 years.

However, some lenders may have age limits that could hinder your ability to extend the terms.

An Unsecured Personal Loan

An unsecured personal loan is a good choice if you only need a small amount of money and intend to make regular payments.

However, the interest is usually higher, so selecting this option is likely not worth your while.

Why Do So Many People Choose Equity Release?

People choose equity release because, these days, interest rates are reasonably low, products are cheaper than ever, and the Equity Release Council3 fully regulates the industry.

While you won’t benefit from the full value of your home, equity release provides the best of both worlds, making it an enticing option for retirees across the UK.

Common Questions

What Else Can Equity Release Be Used For?

How Do I Know if Equity Release Is Right for Me?

Will I Pay More Interest on My Equity Release Loan than on My Mortgage?

In Conclusion

While equity release is a fantastic retirement product, it does have a few pitfalls.

Luckily, the industry is fully regulated, and a financial adviser will guide you through the equity release process.

If it seems like equity release might be the answer you’ve been looking for, take a look at the best equity release companies available in 2022.

Just make sure that you select a lender that’s a member of the Equity Release Council if you want to use equity release to pay off a mortgage.

Before You Go…

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Editorial Note: This content has been independently collected by the SovereignBoss team and is offered on a non-advised basis. SovereignBoss 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.