Can you do equity release with a mortgage?
Can you do equity release with a mortgage is one of the top searches on Google. This is because when people who have an Interest Only mortgage come to the stage of their lives where they need to consider their options, equity release is increasingly becoming one of the favoured choices. In this blog we explore the main options for people with a mortgage that they are looking to pay off.
Downsizing to a cheaper property
This should always be the main option that anyone who has come to the end of their mortgage term considers. Many people have a mortgage term that finishes on or around their retirement date. This means that as they approach this date, their lender contacts them to ask how they are planning on paying back the money they owe to the lender. The lender will sometimes allow the mortgage to continue for a few months, or even up to a year but it is quite unusual for a lender to extend the term for any longer than this.
In theory, over the 25-year term of the mortgage, the property will have increased in value sufficiently for there to be enough equity (or cash) for you to sell the property, repay the lender the amount owed and have enough money to purchase another property.
However, it might be that you simply do not want to downsize and move home. Very often as you reach retirement, you have moved to an area where you have friends and family that you want to remain near. Your home is likely to be somewhere that you have lovingly looked after over the years and it contains many memories that you do not want to move from.
If your property has not increased in value as much as you expected, or if the amount remaining on your mortgage is quite high, you may not be able to purchase the type of property you want in the area you would like to live.
Downsizing should therefore always be the first option to consider, but it may not be the best option for you.
Other potential alternatives
Using other funds such as savings or investments is another potential option. If you can cash in existing investments or savings, then this is a potential alternative to equity release. This would mean that the question ‘can you do equity release with a mortgage’ becomes irrelevant as the mortgage can be cleared using your capital.
Other family members gift you the funds to repay the mortgage
Although this is an unusual method of repaying your mortgage, it does happen. When you explore your options of ‘can we do equity release with a mortgage’ it may make sense to discuss your options with family members. Potentially, your family may consider early inheritance or gifting funds that they do not need.
The answer to the question, ‘can you do equity release with a mortgage’ is therefore yes. The answer to the question, ‘should I do equity release when I already have a mortgage’ is more complicated. If it is the best option for your financial and personal circumstances, then yes, but before you come to any final decision, obtain advice from an ethical and experienced firm of brokers.
If none of these alternative options work for you and you have a mortgage remaining, then Equity Release may be an option for you. This is how it would work:
If as an example you have a property worth £300,000 and a mortgage of £50,000 remaining, you would need to raise at least £50,000 using equity release to clear the existing mortgage. If you wanted to raise any further funds for your own use, you would add this amount to the amount of the equity release loan. Equity released from your property must be the only charge registered against your property.
So you can do equity release when you have a mortgage, however other alternatives should be explored initially to ensure that your decision is based on all the possible alternatives.