Equity Release vs. Remortgage: What’s Best for You?
If you need extra money and own your home, you might consider equity release or remortgaging. These are two ways to unlock cash tied up in your property. But which one is better for you? Let’s break it down in simple terms to help you decide.
What is Equity Release?
Equity release is a way for people aged 55 or older to unlock money from their home without selling it or moving out. Two main types exist:
- Lifetime Mortgage: You borrow money against your home’s value. You don’t have to make monthly repayments; you repay the loan when you sell the house, move into care, or pass away.
- Home Reversion Plan: You sell part or all of your home to a company in exchange for cash. You can stay in your home rent-free for the rest of your life.
What is Remortgaging to Release Equity?
Remortgaging means switching your current mortgage for a new one. If your home has increased in value, you might be able to borrow more money against it. This gives you extra cash to spend. However, unlike equity release, you’ll need to make monthly repayments.
How Do They Compare?
Here’s an easy-to-read table to show the main differences:
Equity release might be right for you if:
- You are 55 or older and don’t want monthly repayments.
- You need money for retirement, home improvements, or to help your family.
- You want to stay in your home for the rest of your life.
- You don’t have enough income to qualify for a remortgage.
When is Remortgaging a Good Idea?
Remortgaging could be a better choice if:
- You are working and can afford monthly repayments.
- You want a cheaper way to borrow money.
- You’re using the money for a specific goal, like paying off debts or improving your home.
- You don’t want to reduce the inheritance you leave behind
What About Equity Release with a Mortgage?
If you still have a mortgage on your home, all equity release plans require you to pay off your mortgage first. This means you can stop making monthly payments and use the extra money for other things, but this will be more expensive over time.
Things to Think About
Equity Release
- The interest builds up over time, which can reduce the value of your estate (the money or property you leave behind).
- Make sure the lender is a member of the Equity Release Council. They have rules to protect you, like a “no negative equity guarantee”. This means you’ll never owe more than your home is worth.
Remortgaging
- You’ll need to pass affordability checks, so your income will be reviewed.
- Your monthly payments might go up if interest rates rise.
- It could extend the length of your mortgage, meaning you pay more interest over time.
Which is Cheaper?
Remortgaging usually has lower interest rates than equity release. However, you’ll need to make monthly repayments, which might not work for everyone. With equity release, you don’t need to worry about monthly payments. However, the total cost of borrowing may be higher.
How to Decide
Choosing between equity release and remortgaging depends on your situation:
- If you’re older, retired, or don’t want monthly repayments, equity release might suit you best.
- If you’re younger and still earning, remortgaging could save you money in the long run.
Get Expert Advice
Before making a decision, speak to a financial adviser. They can help you understand the costs, benefits, and risks. Whether you choose equity release or remortgaging, getting the right advice will ensure you make the best choice for your future.
