How does remortgaging compare to equity release?

Remortgaging and equity release are both ways to access the money tied up in your property, but they differ significantly in how they work, their suitability, and their long-term implications. Remortgaging involves replacing your existing mortgage with a new one, potentially at a better interest rate or to borrow more money. Equity release, conversely, lets you access a lump sum or regular payments from your property’s value without selling it. Choosing the right option depends heavily on your individual circumstances and financial goals.

Remortgaging: A Fresh Start on Your Mortgage

Remortgaging involves taking out a new mortgage to pay off your existing one. This can be beneficial if you find a better interest rate, want to consolidate debts, or need extra funds for home improvements or other expenses. You’ll need to meet the lender’s criteria, which typically includes a credit check. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

• Benefits: Potentially lower interest rates, access to additional funds, debt consolidation.
• Risks: Higher monthly payments if borrowing more, credit check impact, potential for early repayment charges.

Equity Release: Unlocking Your Property’s Value

Equity release allows you to access a cash lump sum or regular payments from the equity (the difference between your property’s value and the amount you still owe on your mortgage) in your home. This is typically aimed at homeowners aged 55 or over. There are two main types: lifetime mortgages and home reversion plans. With a lifetime mortgage, you borrow against your equity, and the loan plus interest is repaid when you sell your home or die. With a home reversion plan, you sell a share of your home’s equity in return for a lump sum or regular payments.

• Benefits: Access to significant funds without selling your home, potential for tax advantages (depending on your circumstances).
• Risks: Reduced inheritance for your family, interest rolls up meaning the amount owed increases over time, potential loss of your home if repayments can’t be made.

Key Differences: Remortgaging vs. Equity Release

The core difference lies in your repayment obligations. Remortgaging requires ongoing monthly payments, whereas equity release typically involves no monthly repayments; the debt is settled upon the sale of your property or the death of the homeowner.

Eligibility

Remortgaging eligibility depends on factors like your credit score, income, and the value of your property. Equity release has age restrictions (usually 55+), but typically has more relaxed creditworthiness requirements. This doesn’t mean your credit score is irrelevant though, as lenders will assess your ability to maintain the property.

Costs

Both options incur fees. Remortgaging involves arrangement fees, valuation fees, and potentially early repayment charges. Equity release involves arrangement fees, interest charges that accrue over time, and potentially exit fees.

Long-Term Implications

Remortgaging allows for full repayment and ownership of your property once the mortgage is paid off. Equity release means the debt secured against your property increases over time, impacting the inheritance you leave. For detailed advice, seek professional guidance. You should always obtain independent financial advice before making such a significant financial decision.

Choosing the Right Option

The best option depends entirely on your individual needs and circumstances. Consider factors such as your age, financial situation, future plans, and the amount of equity you have. Seeking professional financial advice is crucial. The MoneyHelper website provides valuable resources to help you make an informed decision. Find more information on MoneyHelper.

People also asked

What are the tax implications of equity release?

Tax implications can vary; some equity release plans offer tax relief on interest payments, while others don’t. Always seek professional tax advice to understand potential consequences.

Can I remortgage if I have bad credit?

It might be more challenging to remortgage with poor credit, but some lenders offer specialist mortgages for those with less-than-perfect credit histories. Your options will depend on the severity and type of issue on your record.

Is equity release suitable for everyone?

No, equity release is typically not ideal for individuals who anticipate needing a significant inheritance for their beneficiaries, or those with considerable other assets or income streams.

What happens if I can’t repay a remortgage?

Failure to make your mortgage repayments could lead to serious consequences, including repossession of your property, legal action, increased interest rates, and additional charges. Your property may be at risk if repayments are not made.

What are the different types of equity release?

The primary types are lifetime mortgages (interest rolls up) and home reversion plans (selling a share of your home). Each has different implications for your ownership and inheritance.