Combining equity release with a mortgage might feel overwhelming, especially when faced with so many available options.

Based on Age Partnership’s research, 37% of homeowners who opted for an equity release plan in 2022 cited settling their current mortgage as the primary motivation.¹

Our team of dedicated financial researchers consistently studies the market to bring you the latest, relevant, and accurate information on releasing equity.

Whether you are looking to supplement your income, pay off debts, or finance home improvements, we have all the information here to enable you to make the right choice for you.

Here is what you must know.

Can You Take Out Equity Release With an Existing Mortgage?

Yes, you can; however, the primary condition is that any outstanding mortgage balance needs to be settled first, either through the equity release funds or by other means. 

Once your existing mortgage is settled, the remaining funds can be used be it for enhancing cash flow, indulging in hobbies, addressing unexpected expenses, home improvements, or travelling. 

Should the funds from the equity release be insufficient to cover your existing mortgage, consider alternatives such as downsizing, remortgaging, or exploring different schemes.

Pros and Cons of Equity Release With a Mortgage

While it offers benefits like debt consolidation and improved financial flexibility, there are also concerns such as accruing interest and potential inheritance reductions. 

Pros to explore:

• Debt Consolidation: Use it to consolidate debt and reducing monthly payments.²
• Financial Flexibility: You can use the remaining funds post-mortgage payoff for various purposes.
• Improved Cash Flow: With your mortgage paid off, you could enjoy improved monthly cash flow.

Cons to explore:

• Interest Accumulation: The accrued interest on this type of loan can be substantial over time.
• Reduced Inheritance: Future inheritance for your beneficiaries may be reduced.
• Eligibility Issues: Not everyone will qualify, and existing mortgage terms may affect eligibility if there is still a lot to pay off. You will need to pay off the mortgage using some of your equity released.

To determine whether this is a viable form of borrowing in your situation, be sure to discuss your options with an equity release advisor or broker. 

Learn More: General Pros and Cons of Equity Release

Is Equity Release with an Existing Mortgage Right for You?

Determining whether it is right for you requires evaluating your financial situation, goals, and the potential implications for your estate and beneficiaries. 

Take a closer look:

• Financial Landscape - Scrutinise your financial health. Do you have pressing debts or no means to pay off your mortgage? Are there imminent large expenses? Assess if there is a genuine need or if other financial avenues might be more suitable.
• Objectives - Evaluate the primary reasons pushing you toward this option. Are you aiming for home renovations, a more comfortable retirement, or perhaps looking to support a child's education? Being clear on this will guide your decision.
• Implications for Heirs - It can reduce the value of your estate and, consequently, what you might leave behind for your beneficiaries. Engage in an open conversation with your family about this decision, ensuring they understand its implications.

How to Determine the Equity Release Amount Available with an Existing Mortgage

To determine the amount you can release, follow these steps:

1. Property Valuation - Begin with a clear understanding of your home's worth. While online tools offer a quick peek, a professional appraisal will be more accurate.³
2. Clear Financial Picture - Deduct outstanding mortgages or debts tied to your home. The resulting amount is your true equity.
3. Age - Often, age plays in your favour, with older homeowners accessing more due to shorter loan lifespans.
4. Property Nature - Lenders sometimes view certain property types as riskier, affecting the available equity.
5. Health Factors - Distinct terms may apply based on specific health conditions or lifestyles.
6. Equity Release Calculator - Use specialised online calculators for an instant estimate as a hassle-free starting point.
7. Professional Guidance - Consult an expert who can provide personalised advice, present suitable product options, and clarify the related details.

How to Apply for Equity Release with an Existing Mortgage

Applying involves a multi-step process, starting with consulting a qualified advisor.   

Here is a brief guide to set you on your way:

1. Consult a Financial Advisor: Consult a financial advisor to discuss your needs, explore options, and receive tailored advice based on your circumstances.
2. Choose a Suitable Plan: Post consultation, choose a scheme that resonates with your financial aspirations and circumstances. Consider each plan's interest rates, fees, and terms and conditions.
3. Meet the Lender’s Criteria: Ensure you meet the lender’s eligibility criteria, including age, property value, and the amount of equity available in your home.
4. Prepare Documentation: Gather all necessary documentation, including proof of income, property valuation, and identification, to support your application.
5. Seek Legal Advice - Before finalising the agreement, you are required to seek legal advice to understand the implications and ensure all legal requirements are met.

Read On: A Guide to Help You Understand Equity Release

Alternatives to Equity Release with an Existing Mortgage

When considering this option alongside an existing mortgage, evaluate all alternatives, such as remortgaging, downsizing, a secured loan, or a second mortgage, to assist you in making the best decision. 

Alternatives worth considering include:

• Remortgaging - Shifting to a different mortgage might offer better rates and the opportunity to access more money.
• Downsizing - Selling a larger home and purchasing a cheaper, smaller one can result in a profit, giving you access to extra funds.
• Secured Loan/Second Mortgage - This lets you borrow against your property's value without altering your current mortgage arrangement.
• Unsecured Personal Loan - Although collateral is not necessary, be aware that interest rates might be steeper than secured options.
• Retirement Interest-Only Mortgage (RIO) - With RIOs, you only pay the monthly interest. The principal is typically repaid later, often when the property is sold or upon your death.
• Pension Freedoms - Tapping into your pension provides instant cash flow, but be mindful of potential tax implications.
• Savings and Investments - Using savings or cashing out investments can offer immediate relief, but consider the long-term impact on your financial stability.
• Government Grants and Benefits - Check if you are eligible for government support, especially if considering home renovations or upgrades.⁴
• Renting Out Space - If space permits, leasing a room or portion of your home can generate regular extra income.
• Family Assistance - In some cases, family can be a source of financial aid or support.

While each of these options has its advantages and drawbacks, it is vital to consult with a financial advisor to determine which is best suited to your unique circumstances.

Common Questions

Conclusion

Exploring this form of borrowing alongside an existing mortgage offers an avenue for you to tap into your property's value. 

However, it is vital to consider alternatives, seek expert advice, and prioritise your financial well-being. 

By carefully evaluating your options and understanding the long-term consequences, you can make an informed decision about equity release with a mortgage.