It's possible to use a home equity loan to pay off your mortgage, but you'll want to make sure it's the right thing for you. The interest rate on the home equity loan is lower than the rate on the first loan. A capital release mortgage involves a lender giving you cash in exchange for a portion of the proceeds from the sale of your property later on. But unlike a traditional mortgage, which you pay within a certain period of time, a capital release loan is not settled until you leave your home.
On the day your capital release application is completed, you won't have to think about paying your mortgage. The lender's attorneys will pay off your current mortgage. They will also use the equity release funds to pay any other lender with whom you have an outstanding secured loan. Using equity release to pay off your mortgage can lower your monthly payments or even reduce them to zero.
Please note that all calls are made by Key Equity Release, the UK's leading equity release specialists. Another popular use of capital release is for people to be able to provide their loved ones with a cash donation, effectively an early inheritance. While it is not mandatory to pay unsecured debt as part of the process, it is quite common for customers to pay unsecured debt as part of a capital release. You should get advice on whether capital release is right for you and make sure you understand how these products will impact what you can leave your loved ones.
Generally speaking, for most older people, the most financially effective way to free up capital will be to move to a smaller property or a cheaper part of the country. It says that someone who wants to release £60,000 as a lump sum up front could take a capital release loan with More 2 Life that has an interest rate of 4.26%. The maximum amount you can reach with a capital release is based on the value of your property and your age. If you are 55 or older and you fully own your home or have any outstanding mortgages, you can use an equity release scheme to unlock some of the equity accumulated in it over the years.
But you shouldn't use an unsecured personal loan to pay off your mortgage, as the interest you'll face is likely to be much higher than the interest rate on your mortgage. This is because the equity release lender will be the priority charge and the balance is likely to increase (if you don't make monthly repayments). Based on a £250,000 property, you can see how your equity release debt could grow over time, drastically reducing the equity you have left. The Equity Release Council, which is the industry's trade body, insists that all lifetime mortgages include a “non-negative equity guarantee.” Lifetime mortgages, a type of capital release, have evolved into a flexible and secure way to access your property's wealth.
Many people want to pay off their mortgage so they don't have to make the mandatory monthly payments and have more money each month in their pocket.