More people are now reaching retirement with a mortgage still on their property. There are many reasons for this. For example, low interest rates on investments and savings and an increase in the number of interest-only mortgages.
Repaying the mortgage is one of the reasons why some older homeowners choose to release equity. If you are considering equity release, it is important to know that lenders will allow you to remortgage under new terms, but it will have to be on a lifetime mortgage term rather than a fixed term.
Lifetime Mortgage and first charge lending
If you are seeking a lifetime mortgage your provider will state that it is a mandatory requirement that any existing mortgage is fully paid off. Whether you have an interest-only or repayment mortgage, the equity release lender will require that they are the new first charge on your property. This is to ensure they receive all of the equity due when you die or enter long-term care and your home is sold.
A first charge loan or first charge debt is the money that needs to pay paid back first over other debts.
Why choose a Lifetime Mortgage to repay an Existing Mortgage?
Many people choose to switch from a regular mortgage to a lifetime mortgage because they no longer want to make monthly repayments. There is also the appeal of having a lump sum in their bank account for spending on other things such as holidays, renovations or to use as extra, tax-free income.
Is a lifetime mortgage the best option for me?
The minimum age for a lifetime mortgage is 55 and the percentage a customer is able to release from their home increases as they get older, up to a maximum of around 60% of the value. To work out if equity release is the right option you need to consider a few things:
- The outstanding balance on your fixed term mortgage
- The age of the applicant
- The value of the property
You will also need to consider the costs involved in applying for an equity release product such as solicitor, surveyor and application fees. This Access Equity Release blog has more information about the typical costs involved.
The Lifetime Mortgage Application
Once you have decided to go ahead with equity release and pay off your existing mortgage, it should be quite a straightforward process. Most equity release application forms include a section for existing mortgages. Your equity release adviser and solicitor will be able to help you complete the details. When it comes to the balance being paid off, this will be done by either the equity release lender’s solicitor or your solicitor. The process will differ depending on which lender you choose.
:: Use our Equity Release Calculator to work out how much cash you could release.
It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained advisers.
