Remortgage Vs Equity Release – Which is Better For You? 

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Your Income and Monthly Payments

Your Age and Borrowing as a Couple

How Much Capital Do You Want to Access?

Costs and Interest Rates

Exploring Alternatives

Choosing between remortgaging and equity release is a decision that requires careful consideration of your individual circumstances, long-term goals, and lifestyle needs.

Both options have their own set of benefits and drawbacks, so understanding the finer details can help you make the best choice for your situation.

Below, we will explore the considerations and key factors that could influence your decision of which is better. 

Your Income and Monthly Payments

When you opt for a remortgage, you’re essentially taking out a new mortgage, often with the aim of securing a better interest rate or releasing equity from your property.  

One of the main commitments with remortgaging is the need to keep up with monthly repayments. These payments will continue until the end of your mortgage term, which could be many years into the future. This makes it crucial to assess your current income and how stable it is. Depending on the type of mortgage, these payments are either on a repayment, interest-only, or part and part basis. 

If your income is steady and you’re confident in your ability to manage these payments without stretching your finances, remortgaging might be a good fit.  

On the other hand, if you’re concerned about the long-term commitment of monthly repayments, especially as you get older, equity release could offer a more flexible alternative.  

With equity release, you have the option to access the value tied up in your home without the burden of monthly repayments, unless you choose to make them voluntarily. This flexibility can be particularly attractive if you’re looking to supplement your retirement planning or if your income is limited. 

Your Age and Borrowing as a Couple

Age is an important consideration in determining your options. For remortgaging, lenders will typically take your age into account during the application process, and this can influence the deals available to you.  

As you approach retirement, lenders might view you as a higher risk, which could make it harder to find a favourable mortgage rate. The closer you are to retirement, the fewer years you have left to pay off the mortgage, and this can limit your options or increase your monthly payments.  

In contrast, equity release products, such as lifetime mortgages and home reversion plans, are specifically designed with older homeowners in mind. To qualify for equity release, the youngest applicant in a joint application must be at least 55 years old. If you and your partner are considering this option together, the age of the younger partner will determine your eligibility. This makes equity release particularly suitable for over-55 homeowners who may find traditional remortgaging options less accessible. 

Also, in-between a remortgage and equity release sit various retirement mortgage options such as a retirement interest-only mortgage which our team will recommend where appropriate. 

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How Much Capital Do You Want to Access? 

The amount of capital you can release from your home can vary significantly depending on whether you choose to remortgage or go for equity release. Remortgaging allows you to borrow against the value of your home, but the amount you can access is typically limited by your income and your ability to meet monthly repayments. This means that if your income is modest or you have other financial commitments, the amount of money you can release may be relatively small.  

On the other hand, equity release is not dependent on your income, which can make it an attractive option if you’re looking to unlock a larger portion of your home’s value.  

With equity release, you might be able to access a more significant amount of money, as the loan is repaid when the property is sold, either after you pass away or move into long-term care. This can be especially useful if you need a substantial lump sum for major expenses, such as home renovations, helping family members, or simply enjoying a more comfortable retirement.

The amount you can borrow, known as the loan-to-value (LTV) ratio, typically depends on your age, the value of your property, and the specific equity release plan you choose. 

Costs and Interest Rates

The cost of borrowing is an essential factor to consider in your decision. Remortgaging is often the cheaper option over the long term, especially if you can secure a lower interest rate than your current mortgage. However, it’s important to remember that remortgaging still involves fees and potentially higher monthly repayments, depending on the deal you secure. In contrast, equity release, particularly through a lifetime mortgage, usually comes with higher interest rates.

The interest on an equity release loan compounds over time, meaning that the amount you owe can grow significantly if the interest isn’t paid off regularly. This compounding effect can lead to a much larger debt by the time the loan is repaid. It’s also worth noting that with equity release, the amount owed will usually be repaid from the sale of your home, which could reduce the inheritance you leave behind.  

Weighing up these costs is essential to ensure that whichever option you choose fits within your financial plans both now and in the future. 

Exploring Alternatives

While remortgaging and equity release are popular ways to access the value of your home, they aren’t the only options available. Depending on your financial needs and circumstances, other alternatives might be worth considering: 

1. Downsizing – Selling your current property and buying a smaller, less expensive home can free up a significant amount of money. This could provide you with the capital you need without taking on new debt or impacting your monthly income. Downsizing can also reduce your living expenses, such as utility bills and maintenance costs. 

2. Personal Loans – If you only need a smaller amount of money, a personal loan might be a more straightforward solution. While this option involves monthly repayments, it doesn’t require you to use your home as collateral. Personal loans often have shorter terms, so you’ll pay off the debt more quickly compared to a mortgage. 

3. Borrowing from Family – In some cases, family members might be willing and able to help you financially. This can be a way to access funds without the interest and fees associated with remortgaging or equity release. If you choose this route, it’s important to have clear agreements in place to avoid misunderstandings down the line. 

4. Government Schemes – There are various government schemes designed to help homeowners, particularly those who are retired or on a lower income. These schemes may offer grants or low-interest loans for specific needs, such as home improvements, mobility alterations, or energy efficiency upgrades. 

Each of these alternatives has its own set of considerations, so it’s important to weigh them carefully against remortgaging or equity release to determine the best path forward for your situation.

Remortgage Vs Equity Release Mortgage Advice

Navigating the choice between remortgaging and equity release can be complex, and it’s not something you need to tackle alone. Speaking to an independent mortgage broker can provide you with the personalised guidance you need to make an informed decision.  

A specialist over 50s mortgage advisor can help you explore the specific pros and cons of each option, considering your personal circumstances, goals, and concerns. They can also introduce you to products and lenders that you might not have considered, such as different types of lifetime mortgages or home reversion schemes, ensuring that you find a solution that truly works for you.  

Nowadays, there is a huge range of solution for retirement mortgages and it is always a good idea to seek independent advice in order to receive the correct product, mistakes in this space can be costly. 

Whether you’re leaning towards remortgaging, equity release, or considering an alternative, having a clear understanding of your options will empower you to make a decision that supports your financial wellbeing now and in the future.