Can I Release Equity if I Already have a Mortgage?

Lots of people who are considering releasing equity from their home might be wondering if they can release equity if they already have a mortgage.

The answer is that in order to qualify for an equity release scheme, all lenders require your existing mortgage to be fully repaid, or at least nearly fully repaid in order to qualify for an equity release scheme.

If you want to release equity when you already have a mortgage, then you might be asked to pay off your mortgage when you receive your equity release funds.

Often, this will be written into the contract on behalf of the solicitor and equity release provider.

Please call our 24-Hour Helpline: 0330 058 1579

What happens to my mortgage when I take equity release?

Whether you have a repayment mortgage or an interest only mortgage, it is important to understand that you must have repaid your mortgage or at least be close to paying off your mortgage in order to qualify for an equity release scheme.

However, every lender is different and some lenders who do still have an existing mortgage on their property do allow individuals to apply and qualify for equity release.

If you are considering releasing equity from your home but still have a mortgage, then some lenders require you to use the funds from your equity release scheme to pay off your existing mortgage.

Once this has been done, any remaining and excess money is free for you to use however you want to.

If you have more money left remaining on your mortgage, then this may affect your equity release application in a negative way.

For example, if the amount you owe on your home is more than the lender is willing to release to you from your home, then you might not be eligible for an equity release plan.

When you complete your equity release application, your new equity release scheme will be the first charge on your property and will completely replace your initial mortgage on the property.

When you apply for an equity release scheme, there will be a section where you are able to input any existing mortgage information.

It is highly important that you input all details correctly and as accurately as possible. You will most likely need to include your mortgage references number and how much is left on your balance.

You can get this information from your initial mortgage lender.

From then onwards, your current mortgage lender will be contacted from the equity release provider and your solicitor to get more details, such as your redemption statement.

Please call our 24-Hour Helpline: 0330 058 1579

What is a redemption statement?

A redemption statement is a formal letter and statement which highlights how much is left on your current, existing mortgage.

This will have a specific date on, and will also highlight how much additional interest has been paid and how much is left to pay, if any.

As the redemption statement contains information up to a certain date, unfortunately, they are not valid for long. This is why once you receive your redemption statement, you should try to make a decision quickly [1].

If you want to go ahead with your equity release scheme from here onwards, then you will need to engage with your equity release advisor, solicitor and lender to draw up a contract and help you to exchange and complete the equity release scheme.

If you are hoping to use your equity release funds to pay off an existing mortgage, then you will need to talk with an equity release specialist to make sure that this is the best financial decision for you.

Whilst paying off your mortgage, whilst having some extra cash at your disposable might seem like a great idea, it might not always be the best option for you and your situation.

For example, releasing equity from your home might impact whether you are able to gain access to means-tested benefits in the future, and it will also impact how much inheritance you will leave your family, loved ones and next of kin.

Please call our 24-Hour Helpline: 0330 058 1579

What exactly is home equity?

Lots of people still do not have a strong understanding of exactly what equity is. Equity is the value of your home, minus any remaining loan or mortgage that still exists on the property.

Put into simple terms, equity is the amount of your home that you own. This includes then initial deposit you put down on your home, the monthly mortgage repayments that you have been making year on year, and the total market value of your home.

In order to qualify for equity release, you must have paid off your current, existing mortgage on your home, or at least paid off a significant amount of your existing mortgage.

What are the reasons people choose to release equity from their home?

There are many different reasons why someone might choose to release equity from their home. Some people opt for an equity release scheme because they want to help loved ones, and some others choose equity release because they want to enjoy their retirement comfort, do some home improvements or take a long trip away.

Some people decide that they want to help their children with their deposit on their first home, and some others choose to spend their equity release on university fees for their grandchildren.

Others might decide that they want to pay off some of their debts with the money from their equity release scheme, and might choose to opt for one large lump sum, or a number of smaller, more frequent payments.

Some others choose to release equity from their home because they want to start their own business, and use the money that they get from their equity release to buy their stock or to employ staff.

However, it is worth highlighting that there are good, responsible ways to use your equity release, and there are less responsible ways.

If you want to release equity from your home, then you should always talk to an equity release advisor about how and where to spend your equity release money so that you are making positive and responsible investments.

Please call our 24-Hour Helpline: 0330 058 1579

How much equity do I have in my home?

Lots of people who are considering equity release are curious to see how much equity they have built up in their home over the years that they have been living there.

In order to calculate how much equity you have built up in your home, you can use the Equity Release Warehouse calculator for help.

However, let’s use an example to show how equity release works. Let’s say for example that your home is valued at £200,000.

Let’s also say, for example, that you put down an initial £30,000 deposit on the property, and have repaid a total £50,000 in monthly mortgage repayments.

This would mean that the existing balance on the mortgage is £120,000. You have paid off a total of £80,000, which means that you own 40% of your property.

Once you pay off more of your mortgage, you will eventually get to a point where you would have paid off all of your mortgage, and you will then own 100% of your home.

Please call our 24-Hour Helpline: 0330 058 1579

What is the Main Difference Between a Standard Mortgage and an Equity Release Mortgage?

When it comes to equity release, lots of people get confused between the differences between a standard mortgage and an equity release mortgage.

Whilst there are many differences between the two different types of mortgages, there are becoming more and more similarities between the two, as more lenders are adopting features from standard mortgages and using them throughout lifetime, equity release schemes.

A standard mortgage is a loan taken out on a property, where you put down an initial deposit and pay off the rest of the loan through monthly mortgage repayments. This is a great option for anyone who is starting out and buying a home for the very first time.

Once you sell your house, you will get back any equity that has built up through your monthly mortgage repayments, as well as the initial deposit you put down when you bought the property.

An equity release mortgage is very different. An equity release mortgage is only available to those later in life, usually aged 55 or over.

This option allows individuals to remain living in their home, without having to sell their property, but gives them access to the money that has built up in their home over the years.

For example, individuals are able to receive their initial deposit on their property, any monthly mortgage repayments that they have been making over the years, as well as the current market value of their home.

Individuals do not have to pay anything back on a monthly basis, as they would with a normal, standard mortgage.

However, they are able to opt to pay back any interest on their loan that will build up into compound interest over time.

Instead, they are able to receive their equity in one lump sum, or through smaller, monthly payments.

Please call our 24-Hour Helpline: 0330 058 1579

What if I can’t pay off my outstanding mortgage?

Whilst every lender is different, most lenders do require individuals to pay off their current mortgage before they are able to apply for equity release.

If you are going to struggle to do this, then there are a number of options available to you to ensure that you qualify for equity release.

Unfortunately, lots of people find themselves in a position where they are unable to pay off their existing mortgage by the time they hit 55 or more.

For example, some of these potential issues include the following, common situations.

Please call our 24-Hour Helpline: 0330 058 1579

1. You have an interest-only mortgage

Lots of people who have a mortgage end up paying back a significant amount of money on a monthly basis.

Despite doing this, the capital balance on the mortgage of the property remains high. The sum required to repay might remain greater than the amount of money you want to release from your home.

2. Younger borrowers

Although most people have to be aged 55 or over in order to release equity from their home, some younger borrowers and home owners attempt to pay off their mortgage quickly in an attempt to lower their future monthly mortgage repayments.

However, this is incredibly hard for those below the age threshold, which means that you would only be able to release a very small and quite frankly insignificant amount of equity within your home.

If this is you, or you are worried about paying off your outstanding mortgage in order to qualify for an equity release plan, then you should speak with a member of the Equity Release Warehouse team for advice and support on what steps to take.

For example, your current mortgage provider might be able to extend your current mortgage term, or you might simply need to wait a number of years until you are able to pay off more of your mortgage.

You might also need to consider applying for a medically enhanced equity release scheme which might allow some lenders to offer you lower interest rates, or an increased amount of loan you are able to borrow.

If you are worried, then you should always speak with an equity release specialist for advice and support on what to do for the best.

Whilst no equity release advisor can tell you what to do, they are there to help inform, guide and support you to make the right decision.

Please call our 24-Hour Helpline: 0330 058 1579

What types of equity release plans are there?

There are two main different types of equity release across the UK. Whilst lifetime equity release mortgages are the most popular chosen option, it is worth discussing the pros and cons of both.

When you sit down with an equity release advisor, your advisor will talk through the pros and cons of both different equity release schemes, so that you can make an informed decision.

1. Lifetime Mortgages

A lifetime mortgage is the most common type of equity release. A lifetime mortgage is when you borrow money against the value of your own home.

You do have to repay anything whilst you are still alive with a lifetime mortgage, and will only have to repay the loan once you pass away or move into long term care.

It is important to understand that a lifetime mortgage is tax free. Individuals are able to opt to pay off any interest on the loan whilst you are alive, or can opt to not repay it and let it compound over the years.

In order to qualify for this type of equity release, you must be aged over 55 years old, you must own your own home and your property must be worth £70,000 or more.

With a lifetime mortgage, you can opt to receive your money in one large lump sum or you can opt to receive monthly payments from the lender.

Please call our 24-Hour Helpline: 0330 058 1579

2. Home Reversion Plan

The other type of equity release is called a home reversion plan. A home reversion plan is when individuals choose to sell a piece of their home to their chosen lender, in exchange for some of the equity within your home.

Again, you are able to receive this money in one large lump sum, or through smaller monthly repayments.

However, with a home reversion plan you will only ever get between 30% – 60% of the total market value of your home. This means that you will never make as much money with a home reversion plan than if you were to sell your house on the property market.

The great thing about an equity release plan is that you are able to remain living in your home for as long as you want. You also do not have to repay anything until you pass away or move into long term care for health reasons.

You are also free to spend the equity you receive in any way you want to. Some people decide to spend their money on home improvements, a holiday or a new car.

However, some others choose to spend their money on their family, friends and loved ones. They often help them to pay off any student loans, any debt or help to pay for a deposit on a house for a loved one.

Please call our 24-Hour Helpline: 0330 058 1579

Who is able to qualify for equity release in the UK?

In order to qualify for an equity release scheme in the UK, you must first qualify and meet their criteria.

For example, you must be aged 55 or over for a lifetime mortgage equity release plan, and you must be aged 65 or over for a home reversion plan. If you own the property with someone else, then they must also be aged over at least 55 years old.

You must also own your own property in the UK, and this property must be worth at least £70,000 for more in order to qualify. This property must also be your main residence.

It is also important to understand that if you do still have a standard mortgage on your property, then you must have also re-paid a significant amount of their mortgage on your property to qualify for equity release.

If you still have a reasonable amount to repay on your standard mortgage, then you must agree and be willing to pay this off when you receive your equity release plan.

To qualify for equity release, your property must also be in reasonable condition, and there must also not be any type of restrictions on the type of property you own.

You will also need to consider if anyone is currently living with you who does not own the house, or if anyone might be living with you in the future. This includes any children or grandchildren.

If you do have other people living in the property who do not own part of the property, then they will need to sign a waiver to confirm that they understand that they must leave the property if you should pass away or move in to long-term care for health purposes.

Please call our 24-Hour Helpline: 0330 058 1579

What are the advantages and disadvantages of equity release?

If you currently have an existing mortgage on a property and are over the age of 55 then you might want to consider taking out an equity release plan. There are lots of advantages and disadvantages when it comes to equity release, some of which are listed below.

1. The Advantages of Equity Release

There are many advantages when it comes to equity release. For example, you are able to gain access to a tax-free lump sum of money which you are free to spend in any which way you want to.

The other great thing about equity release is that you are able to stay living in your home until you want to move, pass away or move into long term care for health reasons.

You might also find that when you come to release equity from your home, the market value of your property has increased. This means that you will benefit from increased equity.

With equity release, you are also able to move home if you want in the future. However, this does require your new mortgage lender to accept the terms of your equity release plan.

Please call our 24-Hour Helpline: 0330 058 1579

2. The Disadvantages of Equity Release

Likewise, there are also many disadvantages when it comes to equity release, depending on your situation.

For example, if you release equity in your home then the value of your property might be reduced, and the amount of money your family, loved one and next of kins receive will be reduced and they will not receive as much.

In addition to this, with a home reversion plan, the lender will own a large part of the share of your home. Whilst you will not have to pay any rent on this percentage, you will not own it.

It is also important to understand that if you opt for an equity release scheme, then any money that you receive, especially if you opt for a lump sum, might affect any means-tested benefits you currently receive or might be due to receive in the future.

Please call our 24-Hour Helpline: 0330 058 1579

Equity Release FAQs

If you are considering releasing equity from your home but have lots of questions, then you are not alone.

1. How long does the equity release process take?

If you are considering releasing equity from your home, then you need to be aware that the process can take some time, and it is not an overnight way of accessing money and equity within your home.

In order to complete the equity release process from start to finish, the process can take as long as four to eight weeks, depending on the complexity of your current mortgage and financial situation.

It is important to understand that you will need to meet twice with your equity release advisor, so that they can talk you through your different options, allow you time to think and return again once you have made a decision.

No one will rush you or put pressure on you to make a decision before you are ready.

Please call our 24-Hour Helpline: 0330 058 1579

2. Can I still rent out my house if I choose to release equity from my home?

Lots of people who are considering releasing equity from their home wonder if they are still able to rent out their home if they are to do so.

Each lender is different and has different rules, and your equity release agreement and contract will usually state whether you are allowed to rent out your home or not.

For example, some equity release schemes highlight that in order to qualify you must be living in the property, and it must be your main residence meaning that you would not be able to rent out your property to someone else.

3. Can I use my equity release money as a deposit on another house to rent out?

Lots of people who are considering releasing equity from their home want to do so because they want to use this money to put down a deposit on another property which they wish to rent out to someone else to make a profit.

If this is you, then you will be very pleased to know that you are allowed to release equity from your home to use the money as a deposit on another property to rent out. However, it is important to understand that you will need a significant amount of equity and money to do this.

If you are considering this as an option, then you must speak with an equity release advisor from Equity Release Warehouse for help and support. You must also make your plans very clear to them from the start, so that they can make plans for you and only suggest the right kind of schemes for you.

For example, if you plan to use your equity release money to put down a deposit on a second home to rent out to other people, then you will need to opt for a buy-to-let mortgage.

In order to qualify for this type of mortgage, you will need to have a 25% deposit, and your interest will most likely be higher.

Please call our 24-Hour Helpline: 0330 058 1579

4. Can I sell my house after I take out an equity release scheme?

If you have taken out an equity release scheme, then it is important to understand that you are still able to sell your house in the future.

However, your new mortgage lender must accept the terms of your equity release plan, and you can either move your mortgage to the new property (which is known as porting your mortgage) or you can opt to take out an entirely new mortgage on the new property.

If you think you want to release equity from your home but know that there is a high chance that you might want to move house in the future, then you should speak with an equity release advisor for advice and support.

Speak to a member of the team at Equity Release Warehouse for free on 0800 058 1579 or by visiting us online at www.equityreleasewarehouse.com.

Our professional and friendly team will help you make the right decision, both for you and for you family.

References

[1] https://www.ukfinance.org.uk/system/files/Mortgage%20redemption%20statements.pdf