Last updated 4th July 2019
If you want to top up your income in later life, you could remortgage to release equity or free up some cash through equity release.
Homeowners who have an existing mortgage could choose to remortgage to release some of the cash tied up in their home. This means arranging a new mortgage deal that is larger than your existing mortgage.
Choosing equity release to access some of the cash tied up in your home is another option. Equity release is a loan secured against the value of your home that’s repaid once you pass away or move into long-term care.
There are other options available. In this article we’ll focus on remortgaging to release equity and equity release.
Why would you consider remortgaging or equity release?
As a homeowner, your house is likely your biggest asset and there may come a time when you want to access some of the value of it without having to sell.
You’ll probably have had to take out a mortgage to buy your house. And it’s a big investment, but it’s likely one that has continued to grow in value.
Unless you’ve paid off your mortgage, you won’t own the entirety of your home, but what you do own would also have gone up in value.
This value, known as equity, is tied up in bricks and mortar so to access it you may want to consider remortgaging or taking out an equity release plan.
What is your home's equity?
Equity is the market value of your house, minus any outstanding mortgage debt.
To give an example, if your home is worth £200,000 and your mortgage is £150,000, you have £50,000 of equity.
Your equity can increase if…
- The overall value of your property increases compared to when you bought it;
- You make repayments over time to pay off the loan borrowed
If you have equity in your home and you’d like to access some of the value of that equity, there are different ways to do it.
One option is to move or downsize to a smaller, cheaper property. That means you’d pay off any remaining mortgage and you could keep any amount left over, minus any solicitor costs and other fees.
If you don’t want to move, you could borrow money against the equity in your home instead. Depending on your age and circumstances, you could consider releasing money from your home through remortgaging or taking out an equity release plan.
Many people decide to do this to improve their financial situation in retirement or fund home improvements.
How does remortgaging work to release equity?
If you’re wondering how to remortgage to release equity, it’s little bit different to taking out a completely new mortgage when you buy a property.
That’s because you already own your own home and you’ve probably been paying off your mortgage for a while, or you may have paid it off altogether.
This means you’ve built up equity in your property over time, which is the value you’re borrowing against.
In general, the more equity you have, the better position you’re in because the amount of money you owe compared to the value of your home will be lower.
If your initial fixed term mortgage is coming to an end, it can be a good option to remortgage. You’re essentially transferring the outstanding debt from your current lender to a new one.
Most people remortgage to get a better rate on their monthly repayments. But if you do have some equity in your property this is when you could release some of it.
But for older borrowers, there are many other things to consider when it comes to remortgaging to release equity.
Can you remortgage in later life
If you’re retired or approaching retirement, the truth is that it isn’t always easy to remortgage to release equity. That said, remortgaging can still be an option.
There are no hard and fast rules about age limits. Instead, individual lenders will often have their own maximum age caps, so it’s worth looking at different lenders.
But eligibility for remortgaging to release equity in later life isn’t just about age as lenders will also assess affordability. You will need to prove that the income from your pension would be more than enough to cover the repayments on the mortgage.
In order to make a decision, they’ll look at the following:
- The amount you owe compared to the value of your home
- Your income – for example, from pension and savings
- Your monthly outgoings
- What the money is for
- Your credit history
Affordability is something you should also think carefully about before you decide to remortgage. It’s important to make sure you have enough income to make your monthly repayments.
Speaking to an independent financial adviser will help you gain a better understanding of whether remortgaging is suitable option for you to release money from your home.
For homeowners aged 55 or over, equity release is another possible way to release cash tied up in your home. Basically, it allows you to unlock tax-free cash from the value of your home – either as a lump sum or smaller amounts as and when you need them.
See how much cash you could unlock with our FREE Equity Release Calculator
The money you unlock from your home can be used however you like, whether that’s on a home renovation, to go on holiday, or to enjoy a more comfortable retirement.
If you still have a mortgage, the money you unlock must go to pay this off first.
How much you can borrow will depend on the value of your home, state of health and age. But no matter how much cash you release, with a lifetime mortgage (the most popular equity release scheme) you won’t have to worry about making any monthly repayments during your lifetime.
Instead, the loan plus interest is repaid when your home is sold, either when you pass away or move into permanent care.
Could equity release work for you?
If you’re asset rich but cash poor, then equity release could help with the money you need in retirement.
Even if you still have a mortgage on your property, you could still be eligible – it just means that the money you unlock will pay off your mortgage first. Any money left over after that is yours to spend as you wish.
Equity release is a big decision and it isn’t right for everyone, so make sure you consider all other options before you go ahead. You should seek independent expert advice too, so you can be confident that you’re making the right decision.
Remember – equity release will reduce the value of your estate and the amount you’re able to leave as an inheritance when you die. It may affect your tax position and your entitlement to state benefits
Always get expert advice
If you’re considering remortgaging to release equity or equity release to access the money tied up in your home, remember that it’s a big commitment – so you need to think about it carefully.
It’s important to seek advice from an independent expert adviser to help you find out which option is best for you.
The SunLife Over 55 Equity Release Service is here to lend a hand if you’re wondering whether equity release is right for you. Just give us a call and our friendly team will take you through the next steps.
Whenever you’re ready, we’re here for you