What you need to know about using Equity Release to clear your mortgage 

Clearing a mortgage is often at the forefront of a homeowner’s mind, and as you move into retirement, you might have considered clearing your mortgage to free up your retirement income. 

Should you pay off your mortgage early? 

Whilst paying off your mortgage can offer peace of mind and free up your income to enjoy during your retirement, paying off your mortgage might not always be the right choice for you.  

During your discussions with our equity release advisers, we will review any loans and existing debt you may have to create a personalised recommendation of what we believe is the best choice for you, this will not always include equity release.  

Things to consider: 

Early repayment charges 

If you’re considering paying off your mortgage early, you’ll need to check if you’ll be subject to an early repayment charge and any additional costs.  

Any existing debts  

When you’re considering paying off your mortgage, it’s important to consider any other debts you may have and prioritise which loan should be paid off first. You should consider paying off larger loans with higher interest rates first.  

Your plans for retirement 

As you look to the future and consider your plans for retirement, you’ll need to consider the income you will rely on. If you choose to use equity release to clear your mortgage early, your entitlement to some means tested benefits may be affected, including state pension credit.  

If after understanding any potential downfalls of paying off your mortgage early, you wish to proceed with using equity release to clear your mortgage, our specialist equity release advisers are here to discuss through your options.  

Can you use equity release to pay off your mortgage? 

Yes, equity release can be used to pay off your existing mortgage and any secured loan. Using equity release can allow you to release tax-free cash from your home without the commitment of monthly repayments.  

There are two main types of equity release that you may consider if you are seeking to use equity release to clear your mortgage, a lifetime mortgage or a home reversion plan.  

How Equity Release Works 

Equity release is a way of releasing the equity stored in your home in the form of tax free cash. The amount of equity you have in your home is equal to the value of your property, minus any outstanding mortgages or debt secured against it.  

By releasing equity from your home, you will be able to receive your funds in a lump sum or in a drawdown facility to access in the future.  

There are two main types of equity release that you may consider if you are seeking to use equity release to clear your mortgage, a lifetime mortgage or a home reversion plan.  

Lifetime mortgage 

A lifetime mortgage is a type of loan secured against your home, however unlike traditional mortgages, you are not expected to make monthly repayments.  

There are a few types of lifetime mortgages, each designed to suit different circumstances including an enhanced lifetime mortgages, ideal for people with poor health or certain lifestyle factors.  

Your lifetime mortgage, and any interest that has accrued, will be paid off when you pass away or move into long term care.  

Home reversion plan 

A home reversion plan allows you to release equity from your home through the sale of part or all of your property. You will be able to remain in your home ‘rent-free’ until you pass away or move into long term care.  

The benefits of using equity release to clear your mortgage 

Using equity release to clear your existing mortgage can relieve financial stress as you will no longer be required to make monthly repayments, meaning your disposable income may increase. This can help you retire comfortably and spend your monthly income on doing the things you love.  

In addition to clearing your mortgage, you may also have existing debt that needs to be consolidated to help you move towards financial freedom. Your equity release adviser will discuss your financial situation and how much equity you may be able to release. 

Your adviser will also discuss how you plan to use your equity release and the impact this will have on your current and future lifestyle, so you can move forward with confidence.  

Pros and cons of using equity release 

Releasing equity from your home can come with a range of pros and cons, your adviser will discuss these in detail and what this may look like on your personal circumstances.  

The pros 

• With a home reversion plan, you’ll have the right to remain ‘rent-free’ in your property without full ownership 
• The ‘no-negative equity guarantee’ means that you and your estate will never owe more than the value of your home 
• With some plans, there are no regular payments to make, the option is yours.  

The cons 

• You may be subject to early repayment penalties if you wish to repay your loan early  
• The value of your estate will reduce and the amount you can pass on in inheritance via your estate will therefore also decrease 
• Releasing equity can affect your entitlement to means tested benefits including universal credit 

Understanding the safeguards of equity release 

As members of the equity release council, we adhere to their strict code of conduct that includes a number of safeguards and guarantees for customers. This also means we will only recommend Equity Release Council plans, so you can move forward with confidence, understanding we put your best interest first. 

Learn more about the safeguards of equity release and how this impacts the products we recommend.  

Considering the alternatives to equity release 

Equity release isn’t always the right option, fortunately, there are some alternatives to using equity release to clear your mortgage. 

The alternatives to help clear your mortgage can include: 

• Overpayments to reduce the term of your existing mortgage 
• Switching to a different mortgage plan or provider 
• Using investment returns or lump sum payments to clear the debt sooner 
• You can consider downsizing  
• Using other financial products to clear your mortgage 

Should you wish to explore your options, our specialist mortgage advisers are available to provide personalised advice in more detail.  

Chat to our specialist advisers to get started 

Equity release isn’t always the right option, however if you’re seeking to clear your mortgage our specialist equity release adviser can discuss your options.  

Offering no obligation, whole of market advice, our team will work with you to find out if equity release is the right option for you and what is available to help you clear your mortgage faster. We’ll work with you so you can make a clear, informed decision whilst understanding the equity release process.  

Get started today with our equity release calculator to see how much you could release from your home.  

Frequently asked questions 

What is the average mortgage term in the UK? 

Historically, a 25 year mortgage term was the most popular, however 30 and 40 year terms are now becoming more frequent as people look to secure a home and keep their monthly payments to a minimum.  

At what age should you pay off your mortgage? 

Of course, paying off your mortgages early is the ideal situation. There is no set rule as to how old you should be by the time your home is entirely owned by yourself, but in general terms, paying it off before you reach retirement age will leave you with less debt and more income as you stop working, thereby allowing you a more comfortable retirement.  

Is it hard to get a mortgage at 60 years old? 

It is possible to get a mortgage later in life, however the terms may be less favourable. A mortgage lender may possibly look to offer you a reduced term such as 10 or 20 years due to your age or retirement income depending on the lender, which means your monthly payments may be significantly higher than a mortgage over a longer term for a younger person. This is where alternative options may be explored including retirement interest only mortgages and lifetime mortgages.  

What happens if you still have a mortgage when you retire? 

If you still have a mortgage by the time you retire, you may want to look into ways to pay off the outstanding mortgage balance so you can save money and live comfortably in the golden years of your life.  

Equity Release products such as Lifetime Mortgages are a way to release money built up in your home, which can then be used to repay your debts. With a Lifetime Mortgage, there are no monthly payments, with the money only needing to be paid back after you pass away or enter long-term care. This is usually done with the sale of your home at a time when you no longer need it. 

At Bower, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances. 

Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding.