Using equity release to pay off a mortgage early

People approaching retirement may wonder when they will be able to pay off their mortgage.. Increasing economic uncertainty has made this a particular concern for homeowners aged 55 and over, whether they have a capital repayment or interest-only mortgage. 

With more than a third of over-55s set to retire later than the current state pension age of 66, - and repaying a mortgage can be a cause of financial stress in retirement. In fact, one in five homeowners past the age of 55 believe that they will not retire mortgage-free, and another one in five are not sure. 

Eligibility criteria for traditional mortgages can be stricter for older homeowners. Equity release could offer another option. Over 40 percent of people who investigate equity release explore using it for clearing their mortgage. However, there are some requirements to be eligible:

• You must be over 55 years old.
• The property value needs to be a minimum of £70,000.
• The property must be in good condition.
• You must want to borrow at least £10,000.

Should I pay off my mortgage early?

Once you pay off your existing mortgage, you will no longer have to make any monthly repayments, freeing space in your budget for the things that matter most to you. Retirement should be a stress-free time, in which you no longer need to worry about costly monthly instalments and are able to pursue your current interests or dedicate time to exploring new ones.

Many homeowners aged 55 or over may continue to pay mortgages well into retirement. For those homeowners, equity release could offer a means of avoiding financial concerns. Equity release offers a flexible alternative with options to make voluntary payments towards the cost of borrowing.

Why consider equity release to pay off your mortgage?

With property values having risen over the years, equity release can give older homeowners the chance to cash in on the value of their home and use that money to pay off their existing mortgage.

Equity release interest rates continue to be competitive, so the cost of borrowing by this method might be lower than you might expect. Freeing equity in your home as a way of paying off your mortgage early is becoming an increasingly popular strategy for homeowners aged 55 and over to boost their retirement income.

You should bear in mind, however, that releasing equity from your home will reduce the value of your estate. A tax-free cash lump sum could also affect your entitlement to means-tested benefits. Speak with an equity release adviser to better understand the features and risks involved. 

How to use equity release to pay off a mortgage

If you are looking to pay off your mortgage early with equity release, you should first use the calculator on this page to get an estimate of the amount of tax-free cash that you could release. If the amount is less than your outstanding mortgage balance, you might have to consider whether you could cover the difference by other means since it is a requirement of the equity release process that you pay off any existing debt secured on your home. 

If you are unsure of how much cash you might need, it’s a good idea to request a mortgage redemption statement from your lender, as there may be early repayment charges involved.

If you decide to proceed and your application is accepted by a lender, then your solicitor will transfer the released equity directly to your mortgage lender, clearing your existing mortgage in the same legal transaction. Any funds remaining after this will then be transferred to you.

How long does it take to clear your mortgage using equity release? 

You could typically expect the entire equity release process to take up to three months, but this will depend on the complexity of your case. Once you complete and release equity from your home, your solicitor can ensure that your existing mortgage is cleared in full with one single legal transaction.

Find out if you could release enough equity to pay off your mortgage

The Telegraph Media Group has chosen Responsible Equity Release as its trusted specialist to provide its readers with award-winning advice.  If you’re interested in releasing equity to repay your mortgage in full, use the free online equity release calculator on this page. It will be able to give you an estimate of the amount of tax-free cash that could be available. You’ll also be able to select to receive a free guide from Responsible Equity Release via email or post.

If you’re interested in learning more, you could also provide your phone number and the friendly Information Team will get in touch with you. 

• Try the free equity release calculator now and see how much tax-free cash you can release 

Read more:

• Buying a second home
• Mortgages for over-60s
• How to help your child buy their first home using equity release

The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.

Equity release is only available to homeowners that own a property within the United Kingdom.

The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690.

By consolidating your debts into a mortgage, you may be required to pay more over the entire term than you would with your existing debt.