Yes, in many cases. Still having a mortgage does not rule you out. What it does change is the numbers. The existing mortgage has to be repaid first, and what reaches you is whatever is left after that.
How it works when you still owe on your home
If you have a mortgage on your home, it must be repaid on completion of the equity release, usually out of the money released. The old mortgage goes, and the lifetime mortgage becomes the loan secured on your home, with the lender holding a first legal charge on the property.
The lender works out the most you could borrow mainly from your age (the younger age, if there are two of you) and what your home is worth. Health and location can also play a part. Your outstanding mortgage then comes off that figure.
A worked example
A home worth £300,000, owner aged 70. Up to 44% gives an indicative maximum of around £132,000. If there is £40,000 left on the mortgage, that has to be repaid out of the money released, so roughly £92,000 would be left over.
That figure is a guide, not an offer. Your actual figure depends on your circumstances, and the lender arranges an independent valuation of your property.
Our lifetime mortgage calculator does the same sum, taking any outstanding mortgage off to show the net figure. Enter a few details, including how we can contact you, to see your figure. For what decides the amount, read how much equity can I release?
The minimums that matter
- Your home needs to be worth at least £70,000
- The minimum release is £10,000
- You need to be 55 or over for a lifetime mortgage, and there is no upper age limit
The £10,000 minimum is the one that catches people with a larger mortgage. If your indicative net release, after your outstanding mortgage is deducted, falls below £10,000, a lifetime mortgage may not be suitable for your situation, and a different route may fit better.
What happens to your monthly payments
On a standard lifetime mortgage there is no monthly payment required. Once your old mortgage is cleared, the monthly payment that went with it stops, unless you choose to keep making payments.
The interest still exists, though. If you do not pay it, it is added to the loan and compounds, so you owe more later, and that comes out of your estate. You can choose to pay some or all of the interest, monthly or now and then, with no penalty, within the lender's terms.
If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the term of the debt and increasing the total amount you repay.
Using equity release to pay off an interest only mortgage
This is one of the most common reasons people get in touch: the interest only end date is getting closer, and there is no lump sum set aside to repay it.
Start early. Your options are widest while there is still time on the clock. We cover this in detail in using equity release to clear an interest only mortgage.
It can also help if you are struggling to afford a repayment mortgage and do not want to move.
If your mortgage is too big for the release
Sometimes the mortgage is larger than the amount you could release, or what is left is below the minimum. You still have options.
- A retirement interest only mortgage (RIO). Available from 50, you pay the interest each month and the loan is repaid when the property is sold. It is affordability assessed, so your income needs to support the payment, and your home may be repossessed if you do not keep up the payments.
- A standard mortgage for older borrowers. It is income assessed, and your home may be repossessed if you do not keep up repayments.
- Extending your existing term. Sometimes possible with your current lender, and the simplest fix where it works, though it postpones the debt rather than clearing it.
- Downsizing. Selling and moving somewhere smaller clears the mortgage outright and can leave money over.
We look at all of these. See alternatives to equity release.
What to weigh up
Equity release will reduce the value of your estate, and the money released could affect your entitlement to means-tested benefits. Early repayment charges can apply if the plan is repaid early. Craig will tell you when equity release is not the right answer.
Equity release with a mortgage: common questions
Can I get equity release if I have a mortgage?
Often, yes. Your existing mortgage is repaid out of the money released, and you receive what is left. It depends on whether the amount you could release is enough to clear the mortgage and still meet the £10,000 minimum.
Do I have to pay off my mortgage before I take out equity release?
Usually not, as long as the amount you could release is enough to clear it. The balance is repaid either before or when the plan completes, usually out of the money released. So the number that reaches your bank account is what is left after that.
How much will I get after my mortgage is repaid?
Take the most you could release, based on your age and your home's value, then subtract what you still owe. You get the real numbers for your own case before you commit to anything.
What if my mortgage is more than I could release?
Then a lifetime mortgage on its own may not work. A retirement interest only mortgage, a standard mortgage for older borrowers, a longer term with your current lender, or downsizing may suit better. Apart from downsizing, these options need monthly payments, and your home may be repossessed if you do not keep them up.
Will I still have monthly payments?
Not on a lifetime mortgage, unless you choose to make them. Your old mortgage payment stops once it is repaid. A retirement interest only mortgage does have monthly payments, and your home may be repossessed if you do not keep them up.
Not sure how any of this applies to your own circumstances? Craig is happy to talk it through, free and with no obligation.
Talk it through with Craig
To see how the numbers work with your own mortgage, talk to us. The first conversation is free.
Book a call with Craig or call 0113 403 5584.
