Using equity release to pay off my mortgage

Are you feeling the strain of keeping up repayments on your residential mortgage? If so, your first step is reaching out to your mortgage provider. They'll work with you to understand what your options are and where they can support you. This could be by extending your mortgage term or switching to a lower rate product, which could help ease the strain.

But what happens when you’ve exhausted all the options your mortgage provider can offer?

You should only consider equity release, such as our lifetime mortgage, when you've exhausted all other financial routes and still can't afford your mortgage. That could mean you've considered or tried:

• downsizing to a property with a more affordable mortgage
• using savings
• reaching out to a friend or family member who could support you
• or renting out a room

If none of these have worked out for you, equity release, like our lifetime mortgage, could be an option.

People take out a lifetime mortgage with us for many reasons - one of which is to repay a mortgage. So if you're finding it hard to keep up with your monthly payments and you've exhausted all other options, a lifetime mortgage could be one way to ease the pressure. 

There are a few things you'll want to bear in mind before going down this route:

• The amount outstanding on your existing mortgage can affect whether you're eligible or not for equity release through our lifetime mortgage. You'll still need to pay off your residential mortgage with the money you borrow.
• If you take out a lifetime mortgage with us, you should know we apply compound interest to our lifetime mortgages. This means interest is charged on the total loan amount, including any accumulated interest. As a result, the amount you owe can go up quickly, and could end up being more expensive than your existing residential mortgage would have been.
• You have to speak to an equity release adviser before you can take out equity release to ensure it's the right option for you.

It’s a big decision, and it’s important to make sure it’s the right one for you. That's where a qualified equity release adviser can be invaluable. They can help you explore all available options - including other financial solutions - before recommending whether a lifetime mortgage is the best fit for your needs.

• Unlocking cash from your home instead of selling or downsizing enables you to remain in your home. Lifetime mortgages let you take either a lump sum or a smaller cash sum with a cash reserve to dip into as and when you need to, secured against your property.
• Eliminate monthly mortgage payments. Once the equity release funds are used to clear the outstanding mortgage, you no longer need to make those monthly repayments, easing monthly budgeting.
• No regular repayments required (unless chosen). You don’t have to make regular repayments unless you choose to.
• Flexibility to make voluntary repayments. Making repayments can be a great way to reduce the amount owed over time. Lifetime mortgages allow this without early repayment charges, subject to terms and conditions.

Using a lifetime mortgage as your equity release option to pay off a residential mortgage can provide financial relief. But you should be aware of the potential risks and downsides that come with this option.

• Interest compounds, which increases the debt over time. Interest is added to the amount you've borrowed and interest already added so the debt can grow quickly. This reduces the remaining equity in your property and limits further borrowing options.
• Property upkeep is essential. You must keep your property in good repair, insured and pay any rent, service charges, utilities, outgoings and taxes. Failure to do so could result in the risk of repossession.
• Risk of negative equity. If the amount owed grows faster than the property value, you could owe more than your home is worth. Most lifetime mortgages include a ‘No Negative Equity Guarantee’ which means you or your estate will never have to pay back more than your home is sold for, providing it's sold for the best price reasonably obtainable.
• Reduced, and possibly no, inheritance. The more equity you release and the longer interest accrues, the less you may leave behind for loved ones or care costs.
• Flexible repayments. You can make voluntary partial repayments which help to reduce the growth of the total amount you owe over time. If payments are less than the interest added and/or the property value falls, your debt can still grow and negative equity could still occur.
• Early repayment charges may apply. Lifetime mortgages are intended to be long‑term loans and are usually repaid when you (and your partner if a joint mortgage) die or move into long‑term care. Some lifetime mortgages may apply early repayment charges if the loan is repaid early. You should consider whether early repayment may be important to you and the potential cost of doing so.
• Legal advice is required. You'll need to seek legal advice when setting up a lifetime mortgage.

You should consider all your options before making any decisions. Find out more about how our lifetime mortgage works.

Learn about the potential benefits and drawbacks of equity release in general.

Before using equity release to pay off a residential mortgage, you must speak to an equity release adviser. With their help, you can make an informed decision about whether this option is right for you based on your financial situation and goals. Contact the team by giving us a call or requesting a call back below, and we can put you in touch with one of our advisers. Or you can choose from a range of retirement financial advisers using the government-backed service Money Helper.