Paying off a mortgage with equity release: a good idea?

When you’re retired, you might want to escape the financial burden of your mortgage. By paying it off early using equity release, you can reduce your monthly costs. And with more money in your bank, you can enjoy doing the things you love in life.

In this article we look at paying off your mortgage using equity release. We’ll explore how it works, as well as some of the benefits and risks.

Can you use equity release to pay off your mortgage?

Yes, equity release can be used to pay off your current mortgage. However, your ability to do so depends on two things:

How much you still owe.
How much equity you have in your home.

If you're able to release enough money, your monthly mortgage payments could soon be a thing of the past. To get a quick idea of how much you could release, you can use our calculator.

Using equity release to repay an existing mortgage or debts may cost more in the long term. You should get expert advice first.

Should you pay off your mortgage early?

If you can afford to pay off your mortgage before the end of its term, you could save money on interest payments. But there are key things to consider first:

Do you have more costly debts? Credit cards and loans can have higher interest rates. If you need to pay off any, it might be worth take care of them first.
Will there be exit penalties or early repayment charges? Check if you will be penalised for paying off your mortgage early. You should add up the costs of any charges before you choose equity release.

Why use equity release to pay off your mortgage?

Paying off your mortgage using equity release could boost your finances in later life. It also allows you to stay in your own home. And, if you have money left after paying off your mortgage, you could:

Take a holiday.
Buy a new car.
Repair or upgrade your home and garden.
Help loved ones onto the property ladder.
Manage other debt.

Using equity release to repay debts may cost more in the long-term. Gifting money may be subject to inheritance tax and will reduce the size of your estate.

Benefits and risks of lifetime mortgages

If you’ve owned your home for a while, it may have risen in value since you took out your mortgage. This added equity could be used to pay off your debt.

A lifetime mortgage is the most popular type of equity release. It is a loan secured against your home.

What are the benefits?

With a lifetime mortgage, you don’t have to make any regular repayments. But you can if you want to.
The loan tends to be paid at the end of the term. This is when you pass away or enter long-term care. If you have a joint lifetime mortgage, it’s paid off when the last borrower dies or enters long-term care.
Lifetime mortgages tend to come with a no-negative-equity guarantee. This means that you or your beneficiaries will never owe more than your home’s value when it’s sold.

What are the risks?

A lifetime mortgage may cost more in total than extending the term on your current mortgage or remortgaging.
It will reduce the value of your estate. This means your loved ones will inherit less.
It can affect your access to means-tested state benefits.

Before taking out equity release, you should get professional financial advice. Saga Equity Release is a no-obligation advice service. It's here to help you find out if equity release is right for you.

The service is for people aged 55 or over with a UK home worth at least £70,000.
It’s provided by our trusted partners HUB Financial Solutions Limited.
If you decide to take out a Saga Lifetime Mortgage, there's an advice fee of £799. A lifetime mortgage is a loan secured against the value of your home.

How to use equity release to pay off your mortgage.

First you need to see if you can release enough equity to pay off your existing mortgage. You can get an idea of this by using our calculator. If the amount is lower than your current mortgage balance, you’ll need to be able to raise the extra funds.

Your mortgage needs to be paid off fully before or as part of an equity release arrangement. If you have a successful equity release application, your solicitor will transfer the funds to your original mortgage provider. This will clear your existing mortgage. If there are any funds left over, they’ll be sent to you.

How long does it take to pay off your mortgage with equity release?

It tends to take six to 12 weeks to release equity from your home. But it can take longer if there are any hold-ups. The process is a bit like buying a house, so it's never instant. If you want to find out more, request your free Saga Equity Release guide.