Remortgage to release equity in later life: how it compares with a lifetime mortgage
4 min read
You can remortgage to release equity in later life by taking a larger mortgage on your home, as long as a lender accepts your age and income. The main difference from a lifetime mortgage is payments. A remortgage needs monthly repayments or interest. A lifetime mortgage lets interest roll up until the home is sold.
How remortgaging to release equity works
You replace your current mortgage, or take a new one if you own your home outright, with a larger loan. After any existing mortgage is paid off, the difference is paid to you as cash.
Because you are borrowing more, the lender carries out a full affordability check. In later life that usually means assessing pension and other retirement income, and looking at how old you will be when the mortgage ends. Our guide to later life mortgages explains age limits and how lenders assess retirement income, so we do not repeat that here.
Remortgaging with a repayment or interest-only mortgage
A standard remortgage runs for a fixed term. With repayment, you pay off the loan and interest over that term. With interest-only, you pay the interest each month and need a plan to repay the loan when the term ends.
Remortgaging to a retirement interest-only mortgage
A retirement interest-only (RIO) mortgage is designed for older borrowers. You pay the interest each month, and the loan is usually repaid from the sale of the home when you die or move into long-term care. There is no fixed end date. You can remortgage to a RIO mortgage, but you are likely to face a fresh affordability assessment, and our guide to RIO eligibility and affordability covers what lenders look at.
How a lifetime mortgage is different
A lifetime mortgage is the main type of equity release. It is available from age 55. You do not have to make monthly payments, although some plans let you. Interest is added to the loan and compounds, so the amount owed grows. The loan is usually repaid when the last borrower dies or moves into long-term care.
As an illustration, at an interest rate of 7% a year a lifetime mortgage debt with no payments roughly doubles in about 10 years. Actual rates vary. Plans that meet Equity Release Council standards include a no negative equity guarantee: provided the plan's terms are met, you or your estate will not owe more than the value of your home when it is sold.
How much you can borrow also differs. MoneyHelper says a RIO mortgage may allow borrowing of up to 50% to 60% of your home's value at age 50, while a lifetime mortgage is likely to offer around 10% to 20% at age 55. For more detail on how lifetime mortgages work, see equity release explained.
Remortgage vs lifetime mortgage at a glance
| Remortgage (including RIO) | Lifetime mortgage | |
|---|---|---|
| Monthly payments | Required | Optional on some plans |
| What the lender looks at | Your income and age | Mainly your age and your home's value; health on some plans |
| Amount owed | Stays level or falls if you keep up payments | Grows as interest rolls up |
| When it ends | End of term, or on death, sale or care for a RIO | Death or move into long-term care |
| If payments are missed | Your home could be at risk | No required payments to miss |
| Effect on inheritance | Loan repaid from the estate or sale | Usually a larger sum repaid from the sale |
Things to weigh up
Can your income keep up?
Remortgaging keeps the debt from growing, but only if you keep paying. Think about what would happen if your income fell, for example after the death of a partner. Missing payments on a mortgage can put your home at risk.
Costs and early repayment charges
Both routes can involve arrangement, valuation, legal and advice fees. Both may carry early repayment charges if you repay or switch within a set period. Asking for all costs in writing makes the two routes easier to compare.
Benefits and tax
Cash released can reduce means-tested benefits such as Pension Credit, which is reduced by savings above £10,000. Releasing money only when you need it may help limit this.
Options that avoid borrowing
Moving to a less expensive home can release money without any loan, although it brings moving costs and upheaval.
Getting advice before you remortgage to release equity
Firms selling equity release must give advice. For a fair comparison, it helps to speak to an FCA-regulated adviser who can look at both standard later-life mortgages and equity release, rather than only one. They can set out the costs of each route for your circumstances. We do not provide financial advice.
Frequently asked questions
Can I remortgage to release equity if I am retired?
Possibly. Some lenders will lend to retired borrowers if pension and other income can support the payments, and if your age at the end of the term is within their limits. A retirement interest-only mortgage is designed for older borrowers and has no fixed end date. Each lender sets its own criteria, and an affordability check is usual.
How does the cost of remortgaging compare with a lifetime mortgage?
It depends. With a remortgage you pay interest as you go, so the debt does not grow, which can mean less is owed overall. With a lifetime mortgage, interest usually rolls up and compounds. But a remortgage requires monthly payments you must keep up. Fees, rates and early repayment charges also differ, so comparing the full cost is important.
What happens if I cannot keep up remortgage payments in retirement?
Contact the lender as soon as possible. Lenders are expected to treat borrowers in difficulty fairly and may discuss options. But a remortgage is secured on your home, and if payments are not made your home could be at risk. Thinking ahead about how payments would be met if income fell can reduce this risk.
Can I switch from a remortgage to a lifetime mortgage later?
It may be possible if you meet the lifetime mortgage criteria, including being 55 or over, and the new plan is large enough to repay the existing mortgage. Early repayment charges on the current mortgage may apply. The amount available depends on your age and home's value, and the switch would need to be arranged with advice.
Who can advise on both remortgaging and equity release?
Some FCA-regulated mortgage advisers hold permissions for both standard mortgages and equity release. Asking an adviser whether they can compare both routes, and whether they look at the whole market, helps you understand the scope of the advice. You can check an adviser's permissions on the FCA Register before a meeting.
