Equity Release With or Without a Mortgage

If you’re a homeowner looking to release some of the value in your property, you might consider an equity release arrangement. However, if you still have a mortgage outstanding, you may be unsure whether you qualify.

In this article, we’ll examine equity release options with or without a mortgage, how each works, and how a broker can help.

Can you take equity release if you still have a mortgage?

Yes, having a mortgage outstanding on your home doesn’t automatically disqualify you from taking an equity release loan. It will depend on your circumstances, but as long as you are over 55 years old, you could be eligible.

How it works when there’s still a mortgage to pay off

In most cases, the equity you release is used to pay off your mortgage, and anything left over comes to you. You might want just to release enough to pay off the mortgage and free up some monthly income, or you might want to borrow an additional amount as a cash lump sum after the mortgage has been paid.

Paying off your mortgage with equity release might seem like an attractive proposition, but there can be a potential impact on your future finances and your estate, so it’s important to get advice from a specialist broker.

Types of schemes available

When you have a mortgage outstanding, you have two different types of equity release loans available: home reversion plans and lifetime mortgages.

Lifetime mortgages

The most popular equity release option is a lifetime mortgage, which is normally available to anyone over the age of 55. With a lifetime mortgage, you borrow money against the value of your home, which is paid either as a lump sum or regular payment.

The money you release must be used to pay off any outstanding mortgage so that the equity release scheme provider takes the sole first charge on your property. The complication is that the amount of equity you can release varies with age and circumstances and may not always be enough to cover your outstanding loan.

Interest rates can also increase with the amount you borrow, and this will impact overall costs.

Home reversion plans

A home reversion plan, sometimes known as a lifetime lease, is the less common of the two options. It differs in that you’re not required to use the cash you receive to pay off your mortgage, and the amount repayable is fixed as a percentage of your home, with no interest accruing.

The terms of a home reversion plan are relatively simple—you sell a portion of your home to a provider at less than market value and, in return, receive either a cash lump sum or regular payments, which you can use towards your monthly mortgage payments or to pay the mortgage off in part or completely.

The main disadvantage of the home reversion plan is that you sell your share for way under the property’s market value, making it far less popular than the lifetime mortgage.

How a broker can help if you still have a mortgage

Equity release can be complex and difficult to plan for. Having a mortgage outstanding on your home only complicates your options regarding how much you can borrow and potential lenders.

If you’re considering this type of loan with a mortgage, the best thing to do is speak to an equity release broker who has experience securing these types of loans.

The brokers we work with will be able to help you decide which type of equity release loan is right for you, how much to borrow and how to take the money. They will also be able to guide you directly to the lenders with the best rates, potentially saving you thousands of pounds in the long term.

If you get in touch, we’ll arrange for an equity release specialist to contact you directly for a free, no-obligation chat.

Equity release without a mortgage

If you’re considering an equity release loan and have already paid off your mortgage, the process is similar, but it may give you a little more flexibility regarding your borrowing options.

Without a mortgage, the same lifetime mortgage and home reversion plan options apply, but any money you release will come directly to you and doesn’t need to go towards paying off your existing home loan.

This means you may need to borrow less and give away a smaller proportion of your home, and you won’t have to worry about whether you can borrow enough to cover your outstanding mortgage.

Using our equity release calculator below, you can get a rough idea of how much capital you could release from your property if you own it outright.

Which lenders will allow this?

You’ll need to go to a specialist company for an equity release loan or to the sort of people you’d normally associate with insurance and pensions, such as Aviva and L&G. Equity release loans are not typically offered by the sort of high street banks you’d go to for a traditional mortgage.

When getting an equity release loan while you still have a mortgage, you may be restricted to certain lenders based on their minimum age or maximum borrowing requirements. Using a broker can save you huge amounts of time and effort here.

Other ways to release equity

If you’re keen to release some of the equity from your home but don’t think either of these schemes is right for you, there may be other options, depending on your circumstances.

Retirement interest-only mortgage

A retirement interest-only mortgage is similar to a lifetime mortgage in that you borrow an amount of capital against the value of your home. However, it is significantly different in that you pay the interest on the loan every month rather than letting it roll up over the term of the loan. This can make it much cheaper overall than a lifetime mortgage.

A personal loan

A personal loan could be another option, depending on what you want the money for. With a personal loan, you repay the interest and capital every month, and depending on the loan size, it may or may not be secured against your property.

Downsizing

One relatively obvious financial solution is to downsize to a smaller property. This way, you don’t take on any extra debt and instead simply get the difference between the buying and selling price as a cash lump sum. The downside is that you have to move house, which can be a difficult thing to do, both physically and emotionally.

Get matched with a broker who specialises in equity release mortgages

Equity release, with or without a mortgage, is not straightforward, so talking to an expert broker with industry experience is invaluable. Not only can they advise you on the best option for you, but they’ll also shop around and negotiate on your behalf to make sure you don’t end up paying over the odds.

Call us on 0330 818 7026 or make an enquiry, and we’ll assess your circumstances and match you with an advisor who has the right experience and skills to help you. We hand-pick all the advisors we work with and vet them on your behalf so you’ll know you’re getting the best advice possible.