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How to pay off your interest-only mortgage using equity release

If you need to repay an interest-only mortgage, you could consider equity release as an alternative to selling or downsizing.

Interest-only mortgages can make home ownership possible for some people, but if you intend to stay in your home, it's important to have a plan for paying off the mortgage at the end of the term.

Equity release is the process of releasing some of the value of your home and turning it into cash.

There are two types of equity release schemes:

  • a lifetime mortgage is a loan that you pay back when your home is sold or when you go into full-time care
  • a home reversion plan involves selling part of your home to a home reversion provider.

Both options can give you a lump sum that could go towards paying off your interest-only mortgage and the big advantage is that you don't need to move house.

Using equity release to pay off an interest-only mortgage: things to consider

Your first step in your equity release journey is finding out what your home is worth. Put simply, you need to make sure that your home is worth more than you owe on your mortgage. You can only "release" positive equity, which is the value of your property that you own (that value of your home minus any outstanding mortgage).

Releasing equity with a lifetime mortgage may mean there's less for your family to inherit and it could affect your entitlement to means-tested benefits.

However as the loan is repaid when you die or go into permanent long-term care, you don't have to worry about monthly repayments.

Equity release isn't suitable for everyone and it shouldn't be seen as a quick-fix solution as it can have a long-term financial impact.

Other options for repaying your interest-only mortgage

You would have needed to tell your mortgage provider what your plan was for paying off your mortgage when you took it out.

But if you haven't managed to put enough money aside to repay your interest-only mortgage and are reaching the end of the term, you might need to consider downsizing and selling your house, choosing a retirement interest-only mortgage, or using the 25% tax free lump sum of your pension pot to get the money together.

It's important to seek professional advice before making your decision.

Always seek professional advice when considering equity release

Equity release has a significant impact on your finances, which is why you need to talk to a qualified equity release adviser about your unique circumstances before going ahead. In fact, you have to apply for equity release through an adviser.

Here, at OneFamily Advice, we have a team of dedicated advisers, who:

Are salaried rather than working on commission so they aren't biased towards certain providers

Are members of the Equity Release Council and only advise on products with a 'no negative equity guarantee'

Will search the whole-of-the-market, and will only recommend products that are most suited to your needs

You can have a free, no obligation chat with one of our advisers to find out whether equity release could be the right option for you. Then, if you decide to proceed, we charge a single advice fee of £950 on completion - no matter the size of your loan.

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Important: The loan amounts above are an illustration of the amount you could borrow. The actual amount may vary depending on your individual circumstances. The figures are not guaranteed and do not constitute an offer to lend.

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