When it comes to borrowing money in later life, your home can provide some options. 

For example, a lifetime mortgage (a form of equity release) and remortgaging are two ways you can borrow money secured against the value of your property. 

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With both options you don’t need to move out of your home too. 

But these forms of financing are structured differently and come with their own characteristics. 

Below we explain how both these arrangements work, and what form of financing may be best suited for you.  

Explore your later life lending options with Age Partnership 

What is equity release?

Equity release is accessible for homeowners aged 55 and older and comes in two forms – a lifetime mortgage and a home reversion plan. 

A lifetime mortgage is most common of the two and allows individuals to convert a percentage of their home’s value into cash while continuing to own it and live in it, providing financial flexibility when its most needed. 

The money released, plus accrued interest will only need to be repaid when you die or move into long-term care. There are plans that may allow you to make voluntary payments subject to certain limits. Early repayment charges may apply above a set value.

A home reversion plan allows a homeowner to sell a portion—or sometimes all—of their property to a provider for less than market value, in exchange for a lump sum or regular income. The homeowner retains the right to live in the property typically rent-free until death or permanent care.

It is always recommended that you choose an equity release provider who is a member of the Equity Release Council, the body that represents this sector. 

Pros and Cons of equity release

A lifetime mortgage can be the right option for some but not for others, so it’s important to consider the advantages and disadvantages. These include: 

Pros 

• Flexibility – You can choose when to make interest payments or not, meaning you can prioritise other financial commitments. Conversely, you can make voluntary payments to limit the roll up of interest. 
• “No Negative Equity Guarantee” – This standard, set by the Equity Release Council, maintains that your estate will never owe more than your home is worth when it is sold.  It provides financial security that debt from your agreement will not be passed onto your family. 
• “Home for Life” – Another standard set out by the Equity Release Council provides you with the right to remain in your home for life, or until you move into long-term care. This provides reassurance that as long as you keep to the terms of your agreement, you can stay in your property. 

Cons 

• Expensive interest rates – Lifetime mortgages typically offer higher interest rates than those available for mainstream mortgages. And with no certainty of when your repayment plan will come to an end, it can be one of the more expensive forms of borrowing
• Reduces the value of your estate – Equity release reduces the value of your estate and could impact funding long-term care. You’ll have less to pass on to your loved ones as an inheritance. You can, however, ringfence some of your home’s value if this is a significant concern – it’ll just impact how much you can borrow. 
• May affect your entitlement to benefits now or in the future – The exact impact on your means-tested benefits depends on the type of benefit and how the released funds are handled.

For a more detailed breakdown of the advantages and disadvantages of equity release, read this article. 

What is remortgaging? 

Remortgaging refers to the process of entering into a new lending agreement for your property. This can either be under new terms with your existing lender, or to transfer your debt to a new one. 

This process typically happens when you come to the end of your previous agreement – like the end of your fixed term. If you initiate the remortgage process before your deal comes to an end, then you may be forced to pay an early repayment charge. 

Think carefully before securing debts against your property. Your property may be repossessed if you do not keep up repayments on your mortgage.

How does remortgaging release equity from your home? 

If you have enough equity in your home, you may be able to release additional funds by borrowing against its value. 

This money can be used for other purposes, like funding home improvements or for your enjoyment. 

Even if you’ve paid off your mortgage, you may be able to agree a new arrangement. A mortgage broker can help identify your options. 

Pros and Cons of remortgaging

Pros 

• Switch to a better rate – Your mortgage might offer the best interest rates compared to other forms of lending – like a personal loan or lifetime mortgage. This might make it the most affordable form of borrowing of your options. However, remember to check your rate against the borrowing length. Mortgages are long-term borrowing options, and if your repayments are spread over a number of years it could cost more than a personal loan on a more expensive rate but shorter repayment period. 
• Aware of total cost of borrowing – Under a lifetime mortgage, the total cost of your borrowing is uncertain to a degree. While you’ll never owe more than your home’s worth, the cost of borrowing is long-term and depends on how long you stay in your home. With remortgaging, you’ll know how much your borrowing will cost in interest and it allows you to more effectively plan for inheritance.  
• Stay in your home – Remortgaging also allows you to stay in your home, as long as you keep up with your monthly repayments. 

Cons 

• Fees – If your mortgage is with a new lender, then you may need to pay revaluation or conveyancing fees. This can increase the overall cost of your borrowing. 
• Can you find a lender? – As you get older, you might find your options more limited. So, getting in touch with a broker can help identify the best course of action for you.
• Risk of negative equity– If you’re borrowing more money against your home, you could slip into negative equity. This is where the amount you owe is worth more than the property’s value

How do I know what’s right for me?

It’s always best to speak with a qualified financial advisor as they can help you explore which financial options are available to you. 

Advice is required before proceeding with equity release and there may be other options which better suit your circumstances. Age Partnership can help you find out more and if it could be right for your individual circumstances.

Through their service, initial advice is provided for free and without obligation. Only if your case completes would an advice fee of £1,995 be payable. Other lender and solicitor fees may apply. 

You should be aware that equity release requires repaying any existing mortgage. It will also reduce the value of your estate and impact funding long-term care.

Get in touch with Age Partnership here. 

Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Registered address, 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB.