Equity Release vs Remortgage: Which is Right For You?

If you own your own home and you are looking into loan options, there are a few routes you could take. Two of the most popular are equity release and remortgaging, each of which has their own benefits and downsides to weigh up.

To make the right decision, you need to know what these loan deals offer, who they are aimed at and what repayment requirements are imposed on customers, so let’s dive in and sort this out once and for all.

Appreciating the basics

In simple terms, equity release packages are often marketed as lifetime mortgages. This means you get a loan against the value of your home which is only repaid when you die or move into care.

Remortgaging, on the other hand, is the process of switching to a new mortgage provider when your deal with your current lender expires.

This can be sensible if you want to access lower interest rates, or if you want to borrow more to pay off debts or fund home improvements, for example.

Working out what you’ll make from equity release

Equity release lets you access a lump sum payment which will vary depending on two factors; the value of your property and your age.

Using the equity release calculator from Reader’s Digest is a quick and easy way to work out just how much you’ll be able to borrow. The older you are, the more a lender will be willing to hand over.

Depending on your specific circumstances, equity release could let you tap into tens or even hundreds of thousands of pounds.

Conversely, remortgaging rarely involves borrowing more, unless this is your particular intention. If you do borrow more, this will be based on things like your household income, your credit score, your other debt obligations and so on.

Understanding eligibility

If you already have a mortgage, then clearly you could be capable of remortgaging whenever you feel the need. This might not be wise if you are still bound by a fixed term deal from your current provider, as early exit fees can apply. If not, it’s a way to save on monthly payments.

Equity release is a different kettle of fish. The target audience are homeowners who are over the age of 55 and mortgage-free.

You can have a small mortgage remaining on your property, but these loans are aimed at retirees who need a bit more cash to thrive now that they are on a fixed income.

Because equity release is reliant on your home’s value, not your income, it is actually easier to get this type of loan so long as you are over the minimum age and don’t have a mortgage left to pay.

Younger homeowners will need to look into remortgaging if they want to make a difference to their finances. When you remortgage, you’ll also have to keep paying this off monthly, whereas equity release doesn’t have this inconvenience.

Concluding thoughts

Hopefully it’s now obvious whether you’re better choosing equity release or remortgaging, based on your age and how your finances are configured at the moment.

For retired people on a fixed income who want to unlock money that’s trapped in their property, without having to sell up, equity release is ideal.

For people still in work who have plenty of mortgage left to pay off, remortgaging is sensible when a fixed term deal ends, and if you want to reduce your monthly payments or borrow more at a lower rate of interest than could be achieved through a standard personal loan package.