Property wealth among those in or approaching retirement has never been higher. It's great news for homeowners looking for a financial boost later in life. But what if you want to stay in your own home and still reap the rewards of increasing house prices?
You could look at remortgaging your property, or maybe equity release could be the answer. Here's a short guide to both.
Remortgaging your home
Remortgaging your property is where you take out a different or additional mortgage secured on your home
Homeowners who have an existing mortgage against their property could have the option to remortgage their home to receive a cash lump sum. That includes retirement mortgages, as age is not the barrier it once was. You could be eligible to remortgage your home as long as you meet the affordability criteria, no matter how old you are.
Typically, the cash released through a remortgage is used to pay off other existing debts, such as credit cards or loans, or to add value to the property via home improvements.
Can you afford to remortgage?
Remortgaging your property to release a cash lump sum is a decision which must be thought about carefully. If you decide to go ahead, your monthly repayments will likely increase to cover the bigger loan amount, and extending your mortgage's term means it will take you longer to pay it off.
Equity release
Another option that may be available to you if you're wanting to unlock some of the cash tied up in your home is equity release
Equity release allows homeowners aged 55-95 to access a portion of their property's value. After any existing mortgage has been settled, the tax-free money released is then yours to spend as you wish. See how much you could release using our free calculator.
With a lifetime mortgage, the most popular form of equity release, you retain full ownership of your property.
That's because it's a loan secured against your home and it's repaid after your property is sold when your plan comes to an end. That's typically when you or the last remaining applicant either passes away or enters into long-term care.
Can you afford equity release?
There are typically no monthly repayments associated with equity release. If you wish, you may be able to lower the overall cost of your agreement by taking out a plan which allows you to make either regular or ad hoc repayments, but it's not compulsory.
Remortgaging vs equity release
Positives of remortgaging
- You can release a cash lump sum from your home
- You can capitalise on your home's increase in value
- Despite the recent rise, interest rates are still low compared to previous years
- You can switch to a mortgage more suitable to your financial situation and spend your money as you see fit
- You can consolidate all existing debts into one monthly repayment
- You may be able to borrow more from a new lender
Positives of equity release
- You can unlock tax-free cash from your home
- You can choose how you receive your cash – either in one lump sum or in smaller amounts following an initial release, known as a drawdown
- You can use the money however you wish, including making home improvements, clearing existing debts, passing on a living inheritance or booking that once-in-a-lifetime holiday
- With a lifetime mortgage, the most popular form of equity release, there are typically no monthly repayments to make, as the loan, plus roll-up interest, is repaid when the plan comes to an end
- Equity Release Council approved plans offer the no negative equity guarantee, meaning you'll never owe more than your home's worth
- There are no credit checks or mortgage affordability criteria to meet
- With a lifetime mortgage, you retain full ownership of your home
Things to consider before remortgaging
- You'll need to prove affordability before being accepted
- You could be refused based on your age, credit history or income
- Your home may be repossessed if you don't keep up with repayments
- Some of your cash may be used to cover costs and fees
- You'll own less of your home outright as you secure a larger loan against it
- It's important to think carefully before using your secured loan to consolidate unsecured debts
- Unless you decide to go ahead, Key's initial service is completely free of charge. Our mortgage advice fee of £995 is only payable if your agreement proceeds to completion
Things to consider before taking out equity release
- You have to get advice before releasing equity – please read all our information and make sure it's right for you
- You should always think carefully before securing a loan against your home
- Equity release reduces your estate's value and may affect any means-tested benefits you're eligible for or in receipt of
- Your initial consultation with Key is free with no obligation. If you decide to proceed with an equity release plan, our advice fee, usually 1.99% of the amount released, subject to a minimum advice fee of £1,499, is payable on completion