For over-55s who are struggling with debt, equity release could offer a solution. But who might be eligible and what should you consider? Mark Gregory advises a couple who are looking for a solution to their challenging financial situation
The Question
I have a couple of quick questions about equity release. Can I take it out if I still have a mortgage and can I use the funds to pay off my debts?
My home, which his in the south west of England, has been valued at £390,000. There is £74,000 left on the mortgage and we come to the end of a five-year fixed rate in December. My age is 62, my wife is 60.
Recent times have been hard, and I also lost my job, so we have been struggling with bills and living costs. I’ve also got a loan for £1,500 and £8,000 on credit cards. I’m aware our mortgage rate is going to increase when we renew in December.
I’d like pay off the debts and possibly even the mortgage. But even if I can just cover the credit card and loan that would be great. Any advice gratefully received.
Mark’s Answer
Hello, and thanks for your question relating to replacing your debts with the equity you have built up in your home. Firstly, with Equity Release, the lender would require a first charge on your home and therefore you would need to redeem your mortgage, either before you submit an application, or with the proceeds of the recommended equity release plan.
As you are struggling with bills and living costs a flexible Lifetime mortgage may be an option for you and based on you and your wife’s’ ages and your property value, you could borrow the money you need to replace your debts giving you more flexibility and choice.
A Lifetime mortgage would give you options including making interest payments to service the full loan, partial payments or no payments at all. If you chose not to make payments, your loan would increase with a fixed compounding interest, and you could live in your home for the rest of your life or until you need long-term care.
Furthermore, you could make reduced or no initial payments and then start making payments when your financial circumstances ease in the future, the choice is yours. At this stage I would recommend that you talk to one of our independent whole of market specialist advisers who will help, assess all of your options and then make a bespoke recommendation.
However, it is important to inform you that we do not provide specialist debt advice, and you may wish to discuss your options with a qualified debt adviser/counsellor who may be able to help you negotiate with creditors or they may be able to replace your debts with better terms, conditions, and interest rates.
For example, replacing short-term unsecured credit card debts with a Lifetime mortgage may be beneficial in the short-term. However, as noted, the debt will increase with compounding interest for the rest of your life if you do not make payments.
As noted, replacing your existing mortgage with equity release may be a consideration for you, but before you consider a remortgage, it is important to understand what options you have with your existing mortgage. For example, what is the current interest rate, is it an interest only mortgage or a capital and interest repayment arrangement? What is the outstanding term on your existing mortgage and are there any early repayment charges?
Finally rest assured we will not charge you for our advice until any plan recommended completes, so you can spend as much time with one of our advisers as you need without any obligation.
Equity release offers you flexibility and choices. However, it is important you take advice and ensure all options are considered and any recommendation is bespoke to your circumstances.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
