Equity Release To Pay Off Mortgage In April 2024
In this article, we look at how and why you would use equity release to pay off your mortgage early.
How to pay off a mortgage early using equity release
Just make sure that when applying for a loan you get quotes from different lenders so that you can compare interest rates and charges before making a decision
If you cannot gain access, it is important that you review your choices for alternative financial planning.
There are two types of equity release schemes:
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With both, the idea is that after a fixed period of time, usually a mortgage term of between 10 and 25 years, you can use the proceeds to help fund your retirement.
The lifetime mortgage is like an equity loan that you repay monthly – with interest. The major difference is that it’s secured against your home rather than some other asset you own (like your car).
This means the lender will have a charge on your property which means they can sell up if you fall behind with payments, just as they would do with any other debt secured against your home.
You don’t have to take out a lifetime mortgage though – equity release plans give access to cash without a monthly payment schedule attached.
You may want to pay off a mortgage early using equity release so that an elderly relative can still live in their home after they can no longer continue to pay the mortgage. With an equity release product, you can release cash from your home without selling up, so this is a good solution if your relative wants to keep living in their own home instead of moving into a care home.
You should be aware that not everyone qualifies for an equity release plan – these are usually available for those who are at least 55 years old and have considerable equity in their homes (so may need to downsize first).
You also must pass an affordability test that takes into account future changes in interest rates, exchange rates and state pensions, along with current income and expenditure.
You can use an equity release calculator to check how much money you could borrow. This is always the best first step to take.
Many people are interested in finding out how to pay off a mortgage early, but often there is not enough money available to make it work. However, with an equity release mortgage, you can access the value of your home without selling it, taking into account that if you borrow against your house then you will end up spending less on the interest payments which means that you can actually pay it off faster
Although the value of your house is often considered to be your main asset, you could also view it as a source of financial aid which you will only be able to access after you retire. With equity release, one of the most popular types is known as lifetime mortgages which allow people to spend that money before they die, or defer it until after their death.
Why consider equity release to pay off your mortgage?
1. Pay off mortgage early
Many people are not interested in how to pay off a mortgage early because they have insufficient funds to do it, but with equity release, this is the solution that they need.
2. No need to wait until you retire
With lifetime mortgages you can spend the money online or on your daily commute – there’s no need to wait until you retire so you could go on holiday rather than focusing on financial planning for when you stop working.
Some schemes even let you access cash from your home whenever you want without having to take out an additional credit card or rely on your overdraft. You can also take advantage of interest rates being at their lowest levels in years and borrow larger amounts against property values which have increased dramatically over the past few years.
3. Use the money to do other things
If you have a life plan in place, you can get the money to pay off your mortgage early and then use it for other important things such as further education or starting up a business.
You could also look at releasing equity to help fund home improvements – this is how one woman who was 52 years old used her equity plan after she took out funds from her house. She used her newfound freedom (and the cash lump sum) to go on holiday and do some decorating at the same time.
4. Avoid repossession
Paying off your mortgage early, with the lump sum, can help older people avoid having their homes repossessed by the bank if they fall behind with repayments due to retirement without savings, ill-health or loss of income.
5. Pay your mortgage early
With equity release, you can borrow the cash to pay off your mortgage early and then repay it out of your pension or any other income such as a state pension, rental income from property or investments.
6. Borrow from major mortgage lenders
Equity release is accepted by major mortgage lenders and regulators so you do not need to go through a specialist financial adviser or borrow from unregulated lenders which could increase costs and charges even more than borrowing against your home’s value – some recent comparisons found that on average lifetime mortgages are over 3 times cheaper than high street loans.
The latest equity release interest rates as at 1 April 2024
The table below shows you the latest rates, as at 1 April 2024, for lifetime mortgages from some of the leading equity release providers in the UK.
| Product | Provider | Interest Rate | Incentives |
|---|---|---|---|
| 5.26% | |||
| 5.31% | |||
| 5.46% | |||
| 5.58% | |||
| 5.60% | |||
| 5.60% | |||
| 5.61% | |||
| 5.61% | |||
| 5.63% | |||
| 5.65% |
"Just make sure that when applying for a loan you get quotes from different lenders so that you can compare interest rates and charges before making a decision"
How long does it take to clear your mortgage using equity release?
If you use equity release to pay off your mortgage, this can take a matter of months depending on how much you want to borrow and the interest rates available. You may be able to borrow up to 100% of the value of your home, but in some cases, it will depend on whether you are still earning an income or not.
If you want to pay off your existing mortgage early then equity release is the solution that you need. Whether you plan to use this money for other purposes, want to avoid repossession or have insufficient funds to pay off your mortgage monthly instalments, lifetime mortgages can help.
Just make sure that when applying for a loan you get quotes from different lenders so that you can compare interest rates and charges before making a decision
Lifetime mortgages offer fast application times and quick decisions so even if your circumstances have changed recently – such as having retired or being diagnosed with an illness – you should still be eligible for this type of equity release.
Many people are not interested in how to pay off an existing mortgage early because they have insufficient funds to do it, but with equity release, this is the solution that they need
However, it is also important to maximize the value of your property to make sure that you end up with sufficient funds when it comes time to pay back what you owe
An experienced financial adviser will be able to guide you through the process and help you work out how much money you could free up so that when combined with your pension or other income sources such as state pensions, rental income from another property or investments, this should be enough for you to repay what was borrowed against your home’s value without any difficulties.
Negative equity
Negative equity is when the value of your home falls so much that it would not be sufficient to clear the loan you have in place. You may need a bigger deposit than you thought or may even find yourself completely unable to sell if this has happened, though some lenders will allow borrowers to release cash owed against it.
How much does an equity release cost?
Some lifetime mortgages are free to take out, but this will depend on the mortgage lender you use and the value of your property. The cheapest current deals for equity release begin at 0.3% per month (3% APR) so even if you borrowed £100,000 against 15 years, at a 3% interest rate, it would only cost around a monthly repayment of £225 a month.
However, although the monthly payments are not very high, over the years this will add up to a significant amount of money along with interest charges.
You can use equity release to pay off your mortgage early whether you have savings or retirement funds that you want to use or are simply unable to afford your monthly payments. However, if you do not have sufficient income to repay what was lent against your home’s value then other solutions may be more suitable for you
We should point out that borrowing against your property should always be seen as a temporary solution – any money borrowed should be repaid within 10-15 years so that the amount owed is no greater than what it would have been if you had continued paying off your mortgage monthly instalments. Any longer and you could be left with a debt that is so large you will not have sufficient income to repay it.
For example, if you have equity of £100,000 and need to borrow £50,000 then within 10 years your total debt would be over £170,000 which includes the original amount borrowed plus interest charges.
This means that even if you are currently retired or receive a relatively low income but are healthy enough to work full-time then this may not be an ideal solution for you.
How can I improve my chances of being accepted?
To make sure that you get the best deals available on today’s market, make sure that you compare lenders before applying for a lifetime mortgage . Comparing quotes from different lenders is the only way to make sure that you get the most competitive rates and charges.
For instance, you can get quotes from specialist equity release firms but also compare them with online mortgage brokers . Just make sure that you are comparing rates and charges not just overall costs, since some firms may charge high fees but provide a cheap lifetime mortgage.
We would advise anyone considering a product should get equity release advice from either an independent firm or via the Financial Conduct Authority’s free ‘Ask an Expert’ service. This should help ensure that you fully understand the implications of borrowing against your home – both positive and negative – before making any decisions.
Why do people use equity release?
There are many reasons to use equity release but the most common is to provide extra funds when they want to do something like pay for a trip or give money to their children etc.
Since this involves borrowing against your property then the only people who should consider it are those who have no other means of raising the money they need
If you want to use equity release to pay for a special occasion, such as a child’s wedding or buying new car etc. then it can be an effective solution but you must remember that unlike taking out a loan against your credit card, this is one-time cash injection so you will not be able to borrow more than what is needed.
It also makes sense to look for quotes for loans at the same time since many lenders offer both products so by getting them together, you could save on separate application fees and earn interest on larger lump sum borrowed.
Is equity release a good way to pay off your home loan?
This is a good way to pay off your mortgage but only if you have alternative plans as well such as the above-mentioned credit card debt since this should be repaid within 10-15 years and any longer may result in your debt being too high.
You need to look at alternatives such as extending your term, equity release or remortgaging to make sure that money borrowed this way is used for temporary purposes and does not leave you with long term debt.
You need to look at alternatives such as extending your term, equity release or remortgaging to make sure that money borrowed this way is used for temporary purposes and does not leave you with long term debt.
The main benefit of equity release is the freedom it gives you to do what you want without having to worry about repaying your mortgage.
This can be especially important if you have health problems that prevent you from working, but also makes it possible for older homeowners with deteriorating or limited mobility to enjoy a better lifestyle or tackle their care needs.
Can I end a lifetime mortgage early?
All lenders offering lifetime mortgages will have their own conditions attached to how early you can end your plan, as they may levy an early repayment charge.
For instance, some equity release providers allow borrowers to release their cash early against a penalty of 5% , however, others may not charge any fees but simply reduce the amount of interest accrued on the loan.
Frequently Asked Questions
How long does it take to clear your mortgage using equity release?
If you use equity release to pay off your mortgage, this can take a matter of months depending on how much you want to borrow and the interest rates available. You may be able to borrow up to 100% of the value of your home, but in some cases, it will depend on whether you are still earning an income or not.
How much does an equity release cost?
Some lifetime mortgages are free to take out, but this will depend on the mortgage lender you use and the value of your property. The cheapest current deals for equity release begin at 0.3% per month (3% APR) so even if you borrowed £100,000 against 15 years, at a 3% interest rate, it would only cost around a monthly repayment of £225 a month.
How can I improve my chances of being accepted?
To make sure that you get the best deals available on today’s market, make sure that you compare lenders before applying for a lifetime mortgage . Comparing quotes from different lenders is the only way to make sure that you get the most competitive rates and charges.
Why do people use equity release?
There are many reasons to use equity release but the most common is to provide extra funds when they want to do something like pay for a trip or give money to their children etc.
