Remortgaging to Release Equity Release

Remortgaging to Release Equity Release

Remortgaging to release equity with Mark Thompson.

Can you remortgage to release equity?

Yes – people with existing mortgages approach me all the time to replace them with an equity release lifetime mortgage.

Equity release mortgages must be the only mortgage on a property – that’s the main proviso. Whereas with a normal mortgage, you can have a first charge or first mortgage and a second mortgage from another lender. You can’t do that with equity release because it’s fixed for life.

The lender is allowing you to have a mortgage for as long as you live, or until you go into long-term care. So they don’t want anybody else with a claim on the property, because subsequently when your property’s sold it has to repay the loan.

But in a nutshell, yes, you can remortgage to take equity release and it’s a very common reason for doing so.

Can I remortgage early to release equity?

I presume that means before the end of the other mortgage. In which case, yes, you can. There are lots of people with interest only mortgages who are now in their later life and those mortgages are coming to an end. They’ve been paying the interest but there’s still the main capital sum to repay.

It’s best to start thinking about that a year or two before the end of the mortgage. It’s frustrating when a client calls and says their mortgage is coming to an end next week. They’ve put themselves in a stressful position – their lender’s asking them to pay the mortgage back or sell the home, because they want the money that’s owed.

Equity release is a solution, but the earlier you approach it, the easier it is to sort out, with less stress.

If you’re getting to 70 or 75 and you still have a mortgage then perhaps you haven’t planned as well as you could earlier on in your life. The worst thing to do is to compound that by burying your head in the sand and thinking it’ll all go away.

Equity release can be a fantastic way of getting out of that situation, allowing you to stay in your own home and get rid of the existing mortgage you’re having to fund.

What are the reasons for remortgaging to release equity?

As we’ve just said, paying off a mortgage that’s coming to an end is a common one. With the way interest rates have been going, I’ve come across people aged 75 or 80 years old with interest only mortgages who just can’t afford to make their payments any more. So they’re looking at taking equity release to pay off their existing mortgage.

Once on the lifetime mortgage then can pay some of the interest, or all of it, or none of it. But at least they are in more financial control. With the cost of everything going up and their mortgage going through the roof, they’re finding it difficult to survive. But remortgaging with equity release can help.

Some people do it because they want to do some home improvements. Or it could be for anything we generally spend money on. You might want to go on holidays or just have more money each month to live more comfortably.

And actually, people remortgage away from another equity release mortgage. A big problem is where people have taken equity release mortgages a long time ago and don’t think about remortgaging those.

I’ve come across people with 20-year-old mortgages at a massive rate – the clients never wondered whether there was a better deal out there. They would have saved themselves a lot of money by remortgaging. So existing equity release customers should always consider whether or not it’s right to remortgage to another product. An extra 0.5% or 1% on a lifetime mortgage for life is a lot of money, eating into your estate.

We discuss it yearly with our clients to just ensure that they’re happy with what they’ve got and that there aren’t any better rates out there for them.

How do I remortgage to release equity in my property?

It’s got to be an advised process. You can’t just go direct to a lender and ask for equity release. You’ve got to get advice, by law. It’s like taking funds out of your company pension. You’re not allowed to do it unless you’ve had advice and it’s being considered properly.

An advisor would look at your full situation and decide whether equity release is right for you in the first place. They would look at your existing mortgage, any debt, any savings as part of a full financial assessment of your situation to decide if it’s the right thing to do.

If it is, the advisor will guide you through the process, which usually takes about 12 weeks from deciding to do it through to getting the money.

How easy is it to remortgage to release equity?

It’s easy if you’re over 55, you’ve got equity in your property and your loan isn’t too high. Your age impacts on how much you can borrow with equity release. It fluctuates, so I’m not going to get into specifics now, but an 80 year old can certainly borrow a higher percentage against a property than a 60 year old.

If you’re in a couple it goes on the age of the youngest applicant, so the loan to value – the loan amount against the overall value of the property – is aligned with the younger person.

Plenty of people want to use equity release to pay off their existing mortgage, but unfortunately if the existing loan is too high, they can’t borrow enough with equity release.

It also helps if your property will be easy to sell – so if a surveyor would look at your house and see it as a good solid property on which any lender would be happy to lend money for life.

It can be very frustrating if you can’t borrow enough money with equity release. To give you an example, I’ve got a gentleman at the moment who’s got an interest only mortgage. He and his wife are in their late 70s and unfortunately they owe more than they can borrow on equity release. He’s faced with selling his house to pay off his mortgage. They would need to buy a new property in cash, as they’re too old for a mortgage. But the equity left over isn’t enough to buy anything decent in the area.

But while I can’t get them enough equity release to pay off the existing mortgage, I can get them an equity release mortgage on a house they want to buy. That’s a fantastic solution for these particular clients. Yes, they would have liked to stay where they were, but this is the next best option, to buy a house they would be happy with for the rest of their lives.

How does a lifetime mortgage work?

It’s literally as it sounds. It’s a mortgage for life at a fixed rate for life. There was one lender doing a variable rate but I can’t see why anybody would take a mortgage for life on a variable rate. There wasn’t a big takeup on that particular product. So lifetime mortgages are fixed for life.

You can make payments on it if you choose to, or not as the case may be. If you don’t make payments the interest compounds up – there will be interest on interest. The mortgage only becomes repayable after death or going into long-term care. They usually give you or your estate about a year to sell the house and pay back the equity release, so there’s no panic.
The providers are very accommodating and work with you on it.

There is another type of equity release mortgage called a ‘home reversion plan’. This is the one that gives the industry a bad name. It’s where people used to sell their home to a provider in return for the ability to to live in the home – they lost complete control of their home. They were allowed to live in it until they died or went into long-term care. But these plans are virtually non-existent now. It’s less than 1% of the equity release market so it’s almost not worth talking about, but it did exist.

So that’s where the myth comes from that you won’t own your home anymore. With a lifetime mortgage you always own your own home – you’ve just got a mortgage on it, like anybody else.

What can I remortgage and release equity for?

You can release equity for most things that you need money for – but not to invest in business. People did do that in the old days, but the industry is so protected and regulated now. It’s not right to tell people to invest their equity into business ventures which may or may not succeed.

But you can release equity for anything else – home improvements, holidays, paying off mortgages, debt, divorce. Quite a lot of older people are getting divorced and quite often one partner might borrow the money to pay the other partner off so they can go their separate ways. That’s very commonplace.

Gifting to friends and family is another one. We’ve said before that the Bank of Mum and Dad is the 10th largest lender in the country.

In terms of how much you can borrow, that depends on your age and the property value. That really is where you need to speak to an advisor. We don’t go rushing in. We’ll send you a booklet and have a 20 minute question and answer session so you can ask me anything you want – any initial concerns or things you’re not clear about.

In terms of how much you can borrow and how much it would cost, we give a provisional idea. If you then decide to take it further we have more discussions about the situation and then decide whether equity release is right.

But everybody’s situation is different. Even if I quoted figures today on what percentage you can borrow, that could change tomorrow.

What else do we need to know about remortgaging to release equity?

I would encourage listeners out there just to speak to somebody about it. Don’t sit there and suffer – if you’re concerned about your existing mortgage, if you’re thinking about equity release, talk to an advisor about it. Get an understanding, rule it in or rule it out. Life’s about options, isn’t it? Everything’s a lot easier when you’ve got options.

And to me, equity release can be a great option. It isn’t the only option, it might not be the right option. You might not do it, but it is an option to consider. So don’t rule it out and don’t don’t believe everything you hear about it.

Talk to an equity release advisor to get an understanding of whether it’s something that would be right for you. It can be absolutely life changing – I’ve got so many clients that are so happy that they’ve done it. It’s sorted their lives out for them at a stage when they didn’t think they could.

Don’t worry that you’ll be put under pressure. It’s quite a considered process, so just start with a chat and see whether it might work for your situation.

A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.