Equity Release With a Mortgage in Jan 2022

Can You Get Equity Release When You Have a Mortgage?

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

If You’re Over 55 & Burdened With Mortgage Payments, Equity Release Could Be the Solution to Your Problems. But Can You Get Equity Release if You Already Have a Mortgage?

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Can You Have Equity Release With a Mortgage?

Yes, you can use an equity release scheme if you have a mortgage, provided your mortgage is small, but you must use some of the equity you release to pay it off. Equity release is often used to repay older homeowners’ mortgages, as it enables them to capitalise on the value of their property to pay off their existing mortgage, and no longer worry about mortgage repayments.

Are you wondering, Can I get equity release with mortgage payments still outstanding? Well, we’ve got the answers you’ve been searching for.

The uses of equity release can be endless, but if you aren’t aware of all the terms and conditions, you could seriously miss out!

In this article, we’ll unpack:

  • If it’s possible to use equity release to pay off your existing mortgage.
  • The regulations behind this.
  • If it’s wise to pay off your mortgage early.

Let’s be honest; we’re not taught about the wild-world of all things property-related. However, you’re not alone. SovereignBoss is constantly researching up-to-date topics related to all things equity release.

Are you looking to learn what we discovered about paying off your mortgage?

Find out now!

Can I Get Equity Release With a Mortgage?

Yes, you can get equity release with an existing mortgage, as long as there is only a small amount to repay. You’ll need to get in touch with a financial adviser who will be able to let you know if your mortgage is small enough.

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

When you take out equity release with existing mortgage payments owed, you must settle your mortgage with the money you unlock, before you keep the balance. This way, the lender will get the first charge on your estate. Your equity release solicitors will contact your current mortgage lenders to obtain a formal redemption statement. It will show the balance outstanding at a specific date, and how much additional interest has accrued daily. 

Should I Pay Off My Mortgage Early?

Paying off your mortgage early is highly beneficial as you’ll no longer have monthly payments, freeing up space in your budget. You can use the extra income in any way you wish.

Approximately 28%1 of UK homeowners over 55 still have a mortgage outstanding. If this applies to you, you’ll likely want to settle the balance before you stop working.

Why Consider Equity Release to Pay Off Your Mortgage?

You should consider using equity release to pay off your mortgage as you will no longer be liable for any mortgage repayments for the rest of your life. Most older UK homeowners own or only have a small mortgage left, allowing them to qualify for an equity release loan.

Using equity release to pay off your mortgage is definitely worth the consideration. Here’s a few points to think about:

  • Property prices are on the rise – Cashing in on the equity in your home will allow you to pay off your mortgage and have some additional retirement income.
  • You’ll have reduced or no payments left – You’re not obligated to make any loan repayments with equity release.
  • Equity release gives you the option of lump sum or drawdown plans Or there’s an option to select a combination of the 2. You can use a lump sum to cover your outstanding mortgage and then use the rest to fund your retirement (if you wish to take out more cash).
  • Equity release is a lifelong commitment – You must seriously consider the pros and cons. It could limit your ability to move or use the equity elsewhere.
  • Equity release interest can compound quickly – This will erode the value of your estate2 and reduce your inheritance. That being said, equity release interest rates are very competitive and at an all-time low.
  • Equity release plans by regulated providers come with a ‘no negative equity guarantee’ –  You’ll never owe more than the sale price of your estate property.
  • Your qualification for means-tested benefits could be impacted – Get in touch with an equity release adviser to better understand the various plans’ features and risks involved.

Discover: Is Equity Release a Good Idea in Jan 2022?

How Do I Pay Off My Mortgage With Equity Release?

You can pay off your mortgage with equity release by getting in touch with a financial adviser who can guide you through the entire process. We suggest a whole-of-market financial adviser who specialises in equity release products.

Furthermore, you’ll need to take the following steps to pay off your mortgage with equity release:

  • Use our equity release calculator This will give you a clear estimate of the maximum equity available in your estate.
  • Compare this amount to what’s left on your mortgage – You need to ensure you have enough money available to cover the loan.
  • Ask for a mortgage redemption statement from your lender – If you’re unsure how much cash you might need.
  • Chat to your financial adviser – We suggest a whole-of-market adviser that specialises in equity release. They’ll help you determine the best lender and plan, and if this is a wise move for you.
  • Determine how much cash you want – Consider if you want additional funds, over and above repaying your mortgage, or if you’d rather keep the balance in your estate.
  • Hire a solicitor They will assist in transferring the released cash directly to your mortgage lender to clear your existing balance in the same legal transaction. The balance of the funds will be sent your way.

What If I Can’t Cover My Outstanding Mortgage With Equity Release?

If you can’t cover your existing mortgage with equity release, you’ll need to wait until you have access to more equity. The older you are, the more money you can access from your estate.

How Much Will Equity Release Cost Me?

Unlocking equity from your home will cost you somewhere between £1,500 and £3,000, which will cover the costs of a financial adviser, solicitor, valuation, and application fees. Additionally, there will be the loan amount and compound interest to be covered from the sale of your home when you pass away or enter long-term care.

There are 3 different types of equity release costs:

  • Application costs – Including advice fees, lender fees, solicitor fees, and the cost of a valuation.
  • Compound interest payments – With equity release, you have the option not to make any interest repayments in your lifetime. Instead, you can allow it to roll up, and the amount is repaid, usually from your home’s sale, when you pass away or enter long-term care.
  • Loan repayments – The loan is only repaid at the end of your life or move to long-term care. Some plans allow you to repay up to 10% annually.

DISCOVER: Equity Release Costs in Jan 2022

How Long Does It Take to Clear My Mortgage Using Equity Release?

The entire equity release process and clearing your mortgage will take up to 3 months, depending on the case’s complexity. Your solicitor3 will settle your old mortgage in the same legal transaction as the loan transfer.

Do I Have to Pay Off My Secured Loan?

Yes, you must usually pay off your secured loan as part of your equity release agreement. You may either pay it back using the equity release funds or via an unsecured loan.

What Is the Difference Between a Standard Residential Mortgage & an Equity Release Lifetime Mortgage?

The main difference between a standard residential mortgage and an equity release mortgage is that interest is compulsory with a regular mortgage and it’s not with equity release. Furthermore, equity release is for older borrows, whereas regular mortgages are for people over the age of 18.

Here’s a table with more details:

CategoryResidential MortgageEquity Release Lifetime Mortgage
100% property ownershipYesYes
Registered charge on your property by a mortgage lenderYesYes
Maximum loan amountBased on affordability (typically 4.5 times joint annual income).Based on your age and property value.
Affordability checksYesNo
Mandatory monthly repaymentsYesNo
Voluntary repayment optionsYesYes
Minimum ageUsually 18 years old.55 years old.
Maximum ageTypically up to age 75 (The mortgage usually needs to be repaid by retirement).No maximum age.
Intended for lifeNoYes
Fixed interestFor the initial term only (2/3/5/10 years). Reverting to the Standard Variable Rate after that if not re-fixed.Yes for the lifetime of your mortgage.

Why Do People Use Equity Release?

Most people use equity release to top up disposable income or live a financially comfortable retirement – all without the drain of required monthly repayments. The majority of older homeowners in the UK have a significant amount of equity in their property that can be accessed through equity release to pay off debt.

Equity release is chosen for many reasons, including home improvements, buying a second home, or helping out friends or family. But, if it’s used to pay off a mortgage, homeowners over 55 will free their budget from the drain of monthly repayments.

Pro Tip: When releasing equity, you’re obligated to use some of the cash to pay off your mortgage.

Learn More: 15 Most Common Equity Release Uses

Are There Other Ways to Pay Off Your Mortgage Other Than Equity Release?

Yes, there are alternative ways to pay off your mortgage. You can opt for a retirement interest-only mortgage, paying off the loan traditionally, or downsizing to a smaller or cheaper property that will cover your mortgage balance.

Here’s more information:

  • Just paying interest – While there is an interest-only lifetime mortgage (a form of equity release), you can always opt for a retirement interest-only mortgage.
  • Staying traditional – If you have additional income or you work into your retirement, you can continue to pay off your mortgage the traditional way.
  • Downsizing – You can sell your home and move to a smaller place or a cheaper neighborhood.

In Conclusion

It’s not uncommon for UK residents to feel like they haven’t fully prepared for retirement and if you’re in that category, you’re probably looking for ways to supplement your retirement income.

If so, using equity release to settle your mortgage can be a great consideration. Furthermore, you can only unlock equity if you have a small mortgage left, so you’ll likely have equity remaining.

Whatever you decide, be sure to seek professional advice so that you can weigh up all your options. Additionally, equity release does impact your family so you should probably discuss it with your heirs, before making any concrete decisions.

Editorial Note: This content has been independently collected by the SovereignBoss advisor 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.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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