Paying off the mortgage is a common reason for people to take out equity release – but could this cause financial difficulties if you factor in compound interest? Mark Gregory explains in his latest Q&A
The Question
I’m 60 and have a mortgage on my three-bedroom home but due to some financial difficulties I’m considering equity release to help me manage some debts and the high cost of living.
My house is valued at £240,000 and the remaining mortgage is for £90,000. Can I take out some money as equity release and – most importantly – will I be in danger of further financial difficulties because of the compounding effects of the interest. I’d be grateful for any guidance to help me understand this better.
Mark’s Answer
I am sorry to read that you are currently suffering with some financial hardship at this time, and at this stage it is always best to take advice to understand what the best options are available for your personal circumstances.
However, you’re not alone in thinking about equity release as a way to ease financial pressure, especially when everyday costs are rising. It’s always best to ask these questions – and to think carefully about both the benefits and the long-term impact.
The short answer is yes – you can potentially take out an equity release plan at 60 and use it to repay your existing mortgage. In fact, that’s one of the most common reasons people turn to equity release. However, there are some important points to understand before going ahead.
Because your property is valued at £240,000 and you still owe £90,000 on your mortgage, any equity release provider would first require you to use the new funds to fully repay that mortgage. That’s a strict condition of all lifetime mortgage plans as they can be the only one with a first legal charge over your property.
But at 60, your borrowing capacity will be more limited than it would be at 70 or older. Some plans may allow you to borrow around 25% to 30% of your home’s value, which in your case might be close to what you need.
That said, the exact figure depends on your health, income, and the specific lender. An equity release calculator can help provide the maximum release available based on your age and property value.
Now, you’ve rightly raised a crucial point: the compounding effect of interest. If you choose a standard equity release plan and make no repayments, the interest charged is added to the loan each year, and then interest is charged on that too. Over time, the debt grows.
But here’s the good news: many modern plans now allow you to make voluntary repayments, which helps control or even stop the loan from growing. Some plans let you repay up to 10% to 12% of the original loan amount each year without penalty. If you think you could manage even small repayments later on, this could help ease your concerns about future debt.
Also, every Equity Release Council-approved plan comes with a no negative equity guarantee, meaning you or your estate will never owe more than your home is worth.
To provide you with any advice or guidance at this time, I would have to complete a financial questionnaire which is not meant to be intrusive, but it will allow an adviser to consider your personal circumstances including and not limited to your income, expenditure, and health, which would then allow me to make a bespoke recommendation based on all later life funding options.
Therefore, I would strongly suggest that you telephone 0800 802 1051 and chat to one of our friendly expert advisers who will assess your circumstances and be able to help and guide you.
Equity Release is only one solution when you are over 55, and there may be other alternative options available, but as noted, these options are only clear, once an adviser has a clear understanding of your circumstances. Rest assured you will not be charged for a consultation as our advice fee is only payable on the completion of any plan we have recommended.
You can find a trusted adviser here: www.equityreleasesupermarket.com/find-an-adviser
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
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