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Outstanding Mortgage

Equity Release with Outstanding Mortgage

Contrary to popular belief, most homeowners who look into equity release do not in fact own 100% of their home. Most have at least some outstanding payments remaining on their mortgage, which can subsequently be covered by the funds generated through equity release.

How to Pay Off Mortgage Debts with Equity Release

Skyrocketing property prices across the United Kingdom have provided millions of elderly homeowners with the opportunity to cash in on their investments. For most people, their home is their most valuable asset and the biggest collective expense in their lifetime.

As a result, freeing up cash (100% tax free) by way of equity release is becoming more popular than ever before. In doing so, equity release customers are able to pay off their outstanding mortgage balances, leaving plenty left over to fund purchases and do things they have always dreamed of.

This type of equity release is known as a lifetime mortgage, for which there are no mandatory monthly repayments. In order to qualify for a lifetime mortgage, borrowers must be able to pay off all debts currently secured against their property, using either the equity release funds or their savings.

All funds are usually subsequently repaid when the owner of the property dies or goes into residential care and the property is sold on.

Why do People Use Equity Release?

The basic principles behind equity release are relatively simple. Across the UK, it is not uncommon for couples and individuals who own valuable properties to have no savings and very limited income.

For most applicants, the appeal of equity release lies in the all-round improvement of their lifestyle by releasing money they have tied up in their home. Anyone who is asset-rich, but cash-poor could be an ideal candidate for equity release.

From luxury holidays to family cars and personal indulgences of all shapes and sizes, equity release can be used to fund just about anything. Though interestingly, a recent survey indicated that close to 40% of equity release customers were motivated by the prospect of paying off their regular mortgage as early as possible.

Using equity release to clear outstanding mortgage debts brings not only peace of mind, but the elimination of regular monthly outgoings. All with the guarantee of being able to live in your home for the rest of your life.

What Are the Different Types of Equity Release?

Equity release schemes are usually tailored to meet the exact requirements and financial circumstances of the individual applicant. However, all types of equity release fall within one of two primary categories:

  • Lifetime mortgages – minimum age 55

A lifetime mortgage is issued against a property of the applicant, used to clear any existing mortgage debt, and repaid when the home is sold following the death of the borrower. One of the benefits of a lifetime mortgage is the possibility of being offered a fixed interest rate for life and a no-negative-equity guarantee – both of which can protect your beneficiaries from inheriting mortgage debts. Any remaining funds following the sale of the property will either be released to the borrower or will go to the borrower’s estate.

  • Home reversion plans (not offered by UK Property Finance) – minimum age 65

Home reversion plans involve the sale of some, or all, of the applicant’s home to the service provider, in return for a tax-free lump-sum payment or regular instalments. The applicant is granted permission to continue living in their home until they die or move into long-term care, at which point the property becomes the possession of the lender who will subsequently sell it.

Ask the Experts…

If you would like to learn more about the different types of equity release or your suitability for an equity release scheme, book an obligation-free consultation with one of our consultants today.

Last Updated: Apr 22, 2020 @ 11:04 am
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