Equity release vs remortgage: Are they right for you?
- The Cedar Crest Team
- 7 hours ago
- 3 min read
Understanding the differences between unlocking cash and restructuring borrowing
For many homeowners, property is not just a place to live but also a means of building wealth. Increasing values over the past two decades mean that significant amounts of equity are invested in homes across the UK.
When you need money to fund retirement, pay for improvements, or support family, two options often come to mind: equity release or remortgaging. Each functions differently, offers its own benefits and drawbacks, and neither should be undertaken without thorough consideration.
How Remortgaging Works
Remortgaging involves switching your mortgage to a new deal, either with your current lender or a different one. For many, it’s a straightforward way to secure a better rate or product once their existing deal ends. However, remortgaging can also be used to release cash. By borrowing more than you currently owe and accessing the equity in your property, you can generate a lump sum for other uses.
Benefits of Remortgaging
The benefit of remortgaging is that interest rates are often lower than those on personal loans or credit cards, making it a cost-effective way to raise funds. Monthly repayments are predictable, and if the loan is spread over a long term, the impact on household budgets can be manageable.
Drawbacks of Remortgaging
The drawback is that the debt must be repaid in full, with interest, over the duration of the mortgage. Extending the loan term can lower monthly payments but often increases the total cost. Additionally, affordability checks remain stringent, meaning lenders will thoroughly review income, expenses, and commitments before approving the new borrowing.
How Equity Release Works
Equity release is designed for older homeowners, typically aged 55 or above, who wish to access their property wealth without making regular repayments. The most common type is a lifetime mortgage, where a loan is secured against the home, but no repayments are needed during the borrower’s lifetime unless they choose to make them. Instead, the loan and accumulated interest are repaid when the property is sold, typically after the borrower's death or moving into long-term care.
Benefits of Equity Release
The appeal of equity release is evident: it provides access to funds without the burden of affordability checks or monthly repayments. It can give a lump sum, a series of smaller withdrawals, or a combination of both. For retirees with limited income but significant property wealth, it can offer financial independence and stability.
Drawbacks of Equity Release
However, it involves trade-offs. As interest is compounded over time, the total debt can increase quickly. This diminishes the amount of the estate passed to beneficiaries. Although most modern equity release products include safeguards such as a “no negative equity” guarantee, borrowers must accept that a part of their property’s value will be consumed.
Which Option Suits Which Borrower
The decision between remortgaging and equity release typically depends on factors such as age, income, and personal priorities. Someone still working with a steady income might find remortgaging a practical way to access funds while keeping long-term options open. In contrast, someone in retirement with limited income flexibility may value the freedom that equity release offers, despite the higher long-term costs.
Deciding between options isn't always simple. A remortgage might be suitable for financing home improvements that increase property value, while equity release could be a better option for augmenting retirement income. Both choices can assist parents in helping children with house deposits, but they will have different effects on inheritance and future borrowing.
Importance of Professional Advice
Deciding whether to release equity or remortgage is more than a financial calculation. It involves personal goals, family considerations, long-term planning, and professional advice. Both routes can offer valuable flexibility, but they also carry risks that should be carefully weighed.
It is crucial to fully understand the costs, protections, and practical implications. With the correct advice, homeowners can make informed decisions that suit their needs without unexpected repercussions.
Equity Release vs Remortgage: Which Option is Right for You?
Understand your options with our clear, personalised guidance to see if you could unlock cash or lower your mortgage payments. Contact us to review your unique needs today.
Your home may be repossessed if you do not keep up with repayments.