Existing Mortgage Equity Release Guide
Can I Get Equity Release if I Still Have a Mortgage?
Yes, you may be able to take out equity release while you still have a repayment, interest-only, fixed-rate or offset mortgage. Your current mortgage will normally need to be repaid in full when the lifetime mortgage completes.
Written by Simon Oliver, Equity Release Expert at My Later Life
Can You Get Equity Release with an Existing Mortgage?
Having an existing mortgage does not automatically prevent you from taking out equity release.
Your current mortgage does not normally need to be repaid before you apply. However, it will usually have to be cleared in full when the lifetime mortgage completes.
The money released is generally used first to repay your mortgage, any secured loans that must be cleared, relevant early-repayment charges and transaction costs. Any money left afterwards is normally transferred to you.
Can the lifetime mortgage provide enough to repay everything that must be cleared and still leave the additional amount you need?
What Happens at Completion?
The lifetime mortgage lender sends the completion money through the solicitor.
The solicitor clears the existing mortgage using the redemption figure.
Secured loans, charges and relevant costs may also be settled.
Any remaining money is normally transferred to you.
Why Must the Existing Mortgage Be Repaid?
The lifetime mortgage lender will normally require the main legal charge over your property.
Your current mortgage lender already has a charge registered against the home. The existing loan therefore normally has to be redeemed so the new lifetime mortgage lender can take priority.
Can Equity Release Pay Off an Interest-Only Mortgage?
Yes, provided enough money can be released to repay the outstanding capital, charges and costs.
With an interest-only mortgage, monthly payments usually cover interest rather than reducing the original loan. A substantial balance may therefore remain at the end of the term.
The amount available will depend on your age, property value, mortgage balance, lender criteria and any enhanced terms available because of health or lifestyle factors.
Can Equity Release Replace a Repayment Mortgage?
Yes, but the two arrangements work differently.
Repayment mortgage
Monthly payments normally cover interest and reduce the capital balance.
Roll-up lifetime mortgage
If no repayments are made, interest is added and the balance normally increases.
Worked Example: How Much Might You Need?
| Item | Amount |
|---|---|
| Existing mortgage | £62,000 |
| Secured loan | £7,000 |
| Early-repayment charge | £3,500 |
| Estimated costs | £3,000 |
| Additional cash required | £25,000 |
| Total required | £100,500 |
This is a simplified illustration, not a quotation or personal recommendation.
What Is a Mortgage Redemption Statement?
A redemption statement is issued by your current lender and shows the amount required to repay the mortgage on a particular date.
It can include the outstanding capital, interest to the repayment date, early-repayment charges, exit fees, arrears and daily interest after the stated date.
Your solicitor normally requests an up-to-date version before completion.
What If Equity Release Will Not Cover the Mortgage?
You may be unable to proceed if the maximum available is lower than the total needed to clear the mortgage and required costs.
Possible alternatives may include:
- Using savings to cover a small shortfall
- Waiting until you are older
- Asking the current lender to extend the mortgage
- Considering enhanced lifetime mortgage terms
- Using a retirement interest-only or later-life mortgage
- Downsizing
A lifetime mortgage will not usually complete while leaving part of the existing mortgage unpaid.
Can You Add Your Own Money?
Potentially. If the shortfall is relatively small, you may be able to contribute savings at completion.
The solicitor will usually need evidence of where the money came from. Taking another loan to cover the shortfall may not be acceptable or suitable.
Do Secured Loans Also Need to Be Repaid?
Most second-charge mortgages and other secured loans will also need to be cleared when the lifetime mortgage completes.
Unsecured debts do not automatically need to be repaid, although clearing them may form part of a personalised recommendation.
Could Equity Release Cost More Than Keeping Your Mortgage?
Yes. A conventional mortgage may require monthly payments, but those payments can cover interest and reduce capital.
With a roll-up lifetime mortgage, the balance normally grows if no repayments are made.
| Time elapsed | Illustrative balance on £75,000 at 6% |
|---|---|
| 5 years | £100,369 |
| 10 years | £134,313 |
| 15 years | £179,753 |
| 20 years | £240,535 |
These figures illustrate compound interest only and exclude fees, repayments, further borrowing and changes in property value.
Could Your Current Mortgage Have an Early-Repayment Charge?
Yes. Fixed-rate and discounted mortgages often include charges for repaying the loan before the agreed deal ends.
Compare the cost of repaying now with the date on which the charge reduces or ends, as well as the cost of continuing the current mortgage.
What If the Mortgage Is in Arrears?
Mortgage arrears do not automatically prevent equity release, but they will normally form part of the redemption amount and must be repaid at completion.
Where repossession action has started, timing, legal advice and alternative solutions may be particularly important.
Alternatives to Using Equity Release
This may reduce the monthly payment or provide more time to repay.
Another lender may offer a suitable later-life term, subject to affordability.
Monthly interest payments can stop the balance increasing.
Monthly payments reduce capital and interest.
Savings or investments may clear or reduce the mortgage.
Selling and moving to a less expensive property may release money without a lifetime mortgage.
How My Later Life Can Help
Having an existing mortgage can make the choice of equity release plan more complicated.
At My Later Life, Simon Oliver and our team can review your mortgage balance, redemption figure, early-repayment charges, property value, age, income, health and future plans.
We can then search across suitable equity release lenders and plans available through our service.
Our aim is not simply to find a lender willing to release enough money. We also compare rates, fees, repayment allowances, drawdown facilities, early-repayment charges, inheritance protection and moving-home conditions to help identify a competitive option that fits your circumstances.
Where equity release is not suitable, we will explain the relevant alternatives.
Equity Release with an Existing Mortgage FAQs
Can I take equity release if I still owe money on my mortgage?
Yes, provided enough can be released to repay the mortgage and all required costs or secured debts.
Does the mortgage need to be paid before I apply?
No. It is normally repaid from the lifetime mortgage funds at completion.
Can I keep the current mortgage as well?
Normally not, because the lifetime mortgage lender usually requires priority over other secured borrowing.
Can equity release repay an interest-only mortgage?
Yes, if the maximum release is sufficient to clear the outstanding capital, charges and costs.
What if equity release is less than my mortgage?
You may need to contribute savings, extend the mortgage, use another later-life mortgage, wait or consider selling the property.
Will I receive the money before the mortgage is repaid?
Normally no. The solicitor usually clears the mortgage and other required debts before sending the remaining balance to you.
Can I make repayments on the lifetime mortgage?
Many plans allow voluntary repayments within specified limits. Terms vary between lenders.
Is equity release always the best way to repay a mortgage?
No. Suitability depends on your age, mortgage, income, property, future plans and alternatives.
Would You Like to Understand Your Options?
Speak to My Later Life about your existing mortgage, the amount you may be able to release and the alternatives available.
Call 0207 100 4255 Explore Your OptionsCan I Get Equity Release if I Still Have a Mortgage? The Final Answer
You may be able to take out equity release while you still have a mortgage.
Your repayment, interest-only or other secured mortgage will normally need to be repaid when the lifetime mortgage completes. The amount released must therefore cover the redemption figure, required secured debts, costs and any additional cash you want.
Replacing a conventional mortgage with a lifetime mortgage may remove compulsory monthly payments. However, unless repayments are made, compound interest can cause the new balance to increase substantially over time.
At My Later Life, we can assess your circumstances, compare suitable lenders and plans available through our service and help identify a competitive option that fits your needs.
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About the author: Simon Oliver is an Equity Release Expert at My Later Life. He helps homeowners understand lifetime mortgages, compare suitable lenders and consider the costs, risks and alternatives before making a decision.
Important information: Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits.
A lifetime mortgage is a loan secured against your home. Interest may be added to the amount borrowed, meaning the balance can increase through compound interest.
Replacing an existing mortgage with a lifetime mortgage may increase the total cost of borrowing.
N.B. “This is a lifetime mortgage. To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.”
Written by Simon Oliver, Equity Release Expert at My Later Life.
The examples and figures in this article are simplified illustrations. They are not quotations, guarantees or personal financial recommendations.
