Could you use equity release to pay your interest-only mortgage?
Many people take out an interest-only mortgage to make things more affordable in the short-term – as they are paying back just the interest and not the capital, the monthly repayments will be lower.
However, this can also mean that by the time that mortgage approaches maturity and those homeowners examine what is actually left to pay, it can be the case that not enough has been paid down or set aside over the term, and they are now struggling to pay off the balance. When this happens, people often come to us to take a look at the options regarding repayment, and one of the questions we are often asked is if they can release equity from their property in order to pay off their mortgage.
The short answer is yes – if you have an interest-only mortgage, you can take out an equity release loan to free up some money to meet your monthly payments.
How does it work?
For many older homeowners, selling their current property and using the capital gained to pay off the mortgage is one option, followed by downsizing into something more affordable.
For others who want to stay in their home however, equity release can be an invaluable tool. With this option, you can borrow against your existing home to pay off your current mortgage. You can keep up with the new payments out of your monthly income if applicable, otherwise, you can stop making repayments and have interest accrue on the loan. Then when the property is eventually sold, you can repay the accumulated interest along with the capital in one go with the profits from your property sale.
It’s important to note that there are caveats involved with the above; you must be over the age of 55, and your property must be valued at more that £70,000 for example. Equity release is an ideal option the closer you are towards the end of your mortgage, as over the long term, the interest can rack up and create even more debt. The best way to determine whether or not this method is right for you is to speak to an accredited mortgage advisor who can give you some insight and advice regarding your options.
Still have questions?
At My Mortgage Finance, we know it can be difficult to get to grips with all of the information regarding financial planning, which is why we are here to offer impartial, expert advice.
We have spent many years answering your questions about interest only mortgages, equity release and other ways to leverage your asset’s value to help with your retirement and estate planning, and we can use this experience to give you insightful advice on a personal level.
To find out more about how we can help, give us a call today