10 Apr 2024

Remortgaging to release equity

Understanding your equity release options

If you’ve owned your home for a long time, you’ll probably have seen its price rise by quite a lot. You might have paid off some or all of your mortgage too, so you’ll have a fair bit of equity tied up in your home. Now you may be looking to release some of it by remortgaging.

In this article, we’re going to tell you how to remortgage to release equity, by either:

  • Moving to a new standard mortgage or increasing your existing one, or
  • Taking out a lifetime mortgage.
Man and child

How much could you release?

Interested in equity release? Find out how much you could release with our quick and easy to use equity release calculator.

You probably already know about standard mortgages, which are repayment or interest-only fixed-term residential mortgages. But you might not be aware of lifetime mortgages. They’re designed for homeowners aged 55 (or 50 for our Payment Term Lifetime Mortgage) or older who might find standard mortgages harder to get.

Another option is to downsize. But that might not be right for you, as you may not want to move away from loved ones or your local community. There’s more on the pros and cons of this in our downsizing article.

Why release equity from your home?

Many people release equity to pay for home improvements. Other common reasons include helping a family member get on the housing ladder, paying for a dream holiday, or even just covering some day-to-day expenses.

One key benefit is that releasing equity lets you pass an inheritance on to loved ones, while you’re still around to see them enjoying it. That’s called a living inheritance. But don’t forget that whoever receives it, might have to pay inheritance tax on it.

How to remortgage to release equity

Remortgage with a standard mortgage

Remortgaging is a common way of releasing money from your home. It means taking out a loan with your current or a new provider to pay off any existing mortgage, before borrowing more money. You might even be able to get a lower interest rate.

Remortgage with equity release

But getting a new standard mortgage isn’t always simple as you get older. If you’re retired or nearing retirement, it can be hard to prove that you’ll be able to cover its repayment costs over the longer term. Lenders may also look at any debts you hold. Unlike a standard mortgage, equity release is a way of releasing cash from your home without having to move or pay anything back until you die or move into long-term care.

If you’d like to remortgage, we recommend speaking to your current provider or a financial adviser.

How to take out a lifetime mortgage

Lifetime mortgages are a popular type of equity release. Like any other mortgage, they’re a loan secured on your home.

But unlike other mortgage you can make all, some or none of the monthly interest payments, depending on which product you choose. So you won’t need to prove you can cover any repayments costs. The amount you can borrow is based on your age and the value of your home. You do need to be aged 55 or older to get one (or over 50 for our Payment Term Lifetime Mortgage).

Lifetime mortgages are only available through a qualified financial adviser, who will make sure that:

  • It’s the right choice for you
  • You choose the right product
  • You fully understand the product you’ve chosen

A lifetime mortgage will reduce the inheritance you can leave, and may affect your entitlement to means-tested benefits. There may be cheaper ways to borrow money. Your adviser will tell you more about that.

“The way we’ve done the lifetime mortgage means that we’ve got all the benefits of living here, and yet all the benefits of being able to help ourselves, our children, our grandchildren – and having a lot more fun.”

John, Oxfordshire

John with grandchild

Standard mortgages vs lifetime mortgages

We’ve listed the main pros and cons of standard and lifetime mortgages below. That should help you think through which one you’d like to go for.

 
Standard mortgages Lifetime mortgages

Pros

  • Interest rates are usually lower than on lifetime mortgages, so over time you’ll pay back less.
  • You can access all your money as soon as you complete the remortgaging process.
  • You’ll always own all of your home.
  • With a repayment mortgage, if you continue repayments throughout the full term you'll pay off the mortgage and there will be no debt on your home.
  • You can usually make overpayments, reducing the mortgage debt you owe – although you should check with your lender first.
  • If you remortgage with your existing provider you may avoid some of the usual costs of remortgaging.
  • If you remortgage with a new provider you may get a lower interest rate.

Pros

  • You can choose to pay all, some or none of the interest on your loan.
  • You can usually make overpayments, reducing the mortgage debt you owe – although you should check with your lender first.
  • You can take your money as a one-off payment or, depending on the product you choose, a lump sum with the option to draw down more money at a later date.
  • You can only take out equity release through a qualified financial adviser, who will make sure it’s the right product for you and you understand how it works.
  • Many providers (including us) offer a no-negative equity guarantee, so you’ll never owe more than your home is worth. This won't apply if you miss a repayment on your Payment Term Lifetime Mortgage though, and as a last resort your home could be repossessed.
  • You won’t need to repay your loan until you or your partner (if your home is jointly owned) die or move into long-term care.
  • You’ll always own all of your home.
  • You can access all your money as soon as you complete the loan process.

Cons

  • Your monthly payments might go up, which could be a challenge if your household budgeting’s already tight.
  • If house prices fall you might end up in negative equity, making moving house, remortgaging again or paying back your loan difficult.
  • It can be difficult to remortgage in later life because affordability checks are based on your age, income and any outstanding debts you have.
  • If you don’t keep up with your repayments your home may be repossessed.
  • There can be Early Repayment Charges (ERC) if you choose to pay off your mortgage early, though they’re usually much lower than lifetime mortgage ERCs.

Cons

  • Interest rates are usually higher than standard mortgages, so over time you’ll pay back more.
  • If you decide not to make monthly interest repayments, any unpaid interest is added to your loan monthly. This means the amount you owe will quickly increase over time.
  • If you’re receiving certain means-tested state benefits, taking a lifetime mortgage could impact your entitlement.
  • Equity release can also affect inheritance. It’s important to think through those impacts when you’re considering it.
  • There can be Early Repayment Charges (ERCs) if you choose to pay off your loan early. If that’s something you’re thinking about, you should factor in these charges.

 

FAQs

If you own your home then yes, you can remortgage to release equity.

It depends what you’d like to do. You can release equity from your home by taking out a new standard or lifetime mortgage. So on the one hand, yes you can remortgage and take out equity release. But you can’t take out a standard and a lifetime mortgage at the same time. You have to choose one or the other.

That depends on a lot of different factors. If you’re looking to remortgage with your existing provider, it can be quite a quick and easy process. If you’re looking to change both your provider and the type of mortgage you have, it might take longer.

There’s no easy answer to that. It depends on your situation and provider, so we recommend checking with them to get an estimate.

What’s next?

Whatever kind of mortgage you go for, taking on more debt in later life is a big decision. So it’s important to think carefully before you remortgage. There are other ways you can use your home to pay for the things that matter to you, like downsizing. It’s not the right decision for everyone.

You can find out more on our Equity Release product page, and our Equity Release Calculator will help you work out how much you could release from your home. The Money Helper website also has an equity release guide.

If you decide to take out equity release, you’ll need to speak to a qualified financial adviser. If you don’t already have one, you can find one at the Unbiased website. You’ll usually have to pay for their advice.

And we’d be very happy to answer any questions you have ourselves. We can explain our products, and our later life mortgage advisers will help you understand if they’re right for you.

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