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How to use equity release to repay an existing mortgage

It’s clear that we are facing a period of economic uncertainty and whilst this concerns people of all ages and financial status, some homeowners over the age of 55 with a mortgage are particularly concerned. 

According to YourMoney, one in six people expect to still be paying a mortgage over the age of 65. Furthermore, as eligibility criteria tightens and interest rates increase for traditional mortgage options, it is becoming increasingly more difficult for those aged 55 and over to re-mortgage or keep a low interest rate. However, equity release can be a good option to clear any existing mortgage and so increase disposable income whilst taking away any concerns about losing their home. 

In this article, we’ll help you understand how equity release in the form of a lifetime mortgage works and how it can be used to clear an existing mortgage and be the safest mortgage you ever had because you cannot lose your home. 

Can I use equity release to clear an existing mortgage? 

The short answer is yes, it is possible, providing the amount you can release is sufficient to clear any mortgage and your property is suitable to the lender. In fact, clearing a mortgage is the most common reason for using a lifetime mortgage. 

What is a Lifetime Mortgage? 

With a lifetime mortgage, either interest only payments can be paid each month so the loan does not increase, or no interest payments on the loan are made and the interest rolls up. With both options, the mortgage is not repaid until the property is sold or when the last homeowner moves out – whether due to long-term care or the last homeowner passes away. Once the house is sold by your beneficiaries, the family or estate will receive the total price of the house sale minus the remaining mortgage and interest if a roll up with no monthly payment is selected. 

Why use equity release to clear an existing mortgage? 

People choose to release equity for various reasons. However, it is a requirement of the equity release process that you pay off any existing mortgage. 

Using equity release to clear an existing mortgage can increase disposable income by having no mortgage payments, therefore leaving you with a more comfortable retirement, plus you have guaranteed rights of residency for life. There is a cost to your estate which is why you should get advice from an equity release specialist that’s a member of the Equity Release Council (ERC) such as Bower, with all the safe guards that the ERC have put in place to protect the consumer. 

How to use equity release to clear an existing mortgage 

The most common equity release product, a lifetime mortgage, allows the release of equity in the home. This can be received in one lump sum or smaller instalments over a period of time as required. However, it is essential to ensure the tax-free cash lump sum is enough to cover any outstanding mortgage or loans secured on the home. Otherwise, you will need to think about how you are going to cover the difference. 

Our free equity release calculator provides an approximate amount you can release from your home, although to be sure, we recommend you speak to an equity release adviser.  

How long will the process take? 

If you decide to go ahead with equity release and your application is accepted by a lender, a solicitor will transfer the released money directly to your mortgage lender. Any outstanding money will then be transferred to you if you required other money for any other reason.  

Unfortunately, it’s not possible to say precisely how long the process will take, as this depends on each individual case. However, a relatively straightforward application is estimated to take approximately eight to twelve weeks. 

How do I know if I’m eligible to clear my existing mortgage using equity release? 

Our equity release calculator will give you an indication of the amount of equity you could release; however if you prefer, just call us and one of the friendly team will let know how much you can release. We recommend you discuss this with a company that is Authorised and Regulated by the Financial Conduct Authority (FCA) and also a member of the Equity Release Council such as Bower. 

Equity release is a big financial decision that should only be made after seeking advice from a professional qualified adviser that is authorised and regulated by the FCA, this is so they will be able to assess your individual circumstances and answer any questions, look at all alternatives and to help you with all your options. Read our guide to some of the pros and cons of equity release, helping to answer those vital questions with informed, accurate, objective, fair and balanced information you can trust. 

Please do not hesitate to get in touch with us at Bower and one of our friendly, knowledgeable experts will be happy to help you.