Understanding Remortgaging and Equity Release
Before comparing the two options, it is important to understand what each involves.
Remortgaging:
Remortgaging means replacing your current mortgage with a new deal. You can do this with the same lender (a product transfer) or switch to a different provider. If you need to raise additional funds, you can borrow more than your outstanding balance — the extra amount is added to your new mortgage and repaid alongside it through regular monthly payments.
Remortgaging is available to homeowners of any age, provided they meet the lender's affordability and credit criteria. Most lenders have a maximum age at the end of the mortgage term, typically between 70 and 85, though some specialist lenders are more flexible.
Equity release:
Equity release allows homeowners aged 55 and over to access the equity in their property without selling it. The most common form is a lifetime mortgage, where you borrow against your home and the loan, plus accumulated interest, is repaid from the sale of the property when you pass away or move into long-term care.
Key features of equity release include:
- No mandatory monthly repayments (though some plans allow voluntary payments).
- You retain ownership of your home and the right to live in it for life.
- The loan amount plus rolled-up interest is repaid from the eventual sale proceeds.
- Products from Equity Release Council members include a no-negative-equity guarantee, ensuring you or your estate will never owe more than the property is worth.
The other form of equity release is a home reversion plan, where you sell a share of your property in exchange for a lump sum or regular payments. These are less common than lifetime mortgages.
Cost Comparison: Remortgage vs Equity Release
The cost difference between these two options can be substantial, and understanding it is critical to making the right decision.
Remortgage costs:
- Monthly repayments of capital and interest throughout the mortgage term.
- Interest rates are typically lower than equity release rates.
- The total cost is predictable — you know exactly how much you will pay over the term.
- Potential arrangement fees, valuation fees, and legal costs, though many lenders offer fee-free or cashback deals.
Equity release costs:
- No monthly repayments are required, but interest is charged on the loan and compounds over time.
- Interest rates are generally higher than standard mortgage rates.
- The effect of compound interest means the total amount owed can grow rapidly. For example, a loan of £50,000 at 5% interest would roughly double to around £100,000 after 14 years if no payments are made.
- Arrangement fees, valuation fees, legal fees, and adviser fees typically apply and can total several thousand pounds.
Illustrative example:
| Factor | Remortgage (£50,000 over 15 years at 4%) | Equity Release (£50,000 at 5.5%, no repayments) |
|---|---|---|
| Monthly payment | Approximately £370 | £0 |
| Total interest paid | Approximately £16,600 | Approximately £62,600 (after 15 years) |
| Total cost | Approximately £66,600 | Approximately £112,600 |
This example illustrates why remortgaging is almost always cheaper in total. However, it requires the ability to make monthly repayments, which is not always possible or desirable for older homeowners on a fixed retirement income.
Who Should Consider Remortgaging?
A remortgage is generally the more cost-effective option and should be your first consideration if you meet the eligibility criteria. It is particularly well-suited if:
You have a regular, reliable income:
Whether from employment, self-employment, pensions, or investments, if you have enough income to comfortably afford monthly repayments, remortgaging gives you access to lower rates and a cheaper total cost of borrowing.
You are under 60:
Most mainstream lenders will happily consider remortgage applications from borrowers under 60, with mortgage terms that can extend 25 to 30 years or more. This gives you plenty of time to spread the repayments comfortably.
You want to preserve your estate:
With a remortgage, you repay the debt during your lifetime. This means the full value of your property (less any outstanding mortgage) passes to your beneficiaries. With equity release, the accumulated debt reduces the value of your estate, sometimes significantly.
You need to borrow a large amount:
For larger sums, the lower interest rates available through remortgaging can save tens of thousands of pounds over the life of the loan compared with equity release.
You want flexibility:
Remortgages offer the flexibility to overpay, underpay (in some cases), or switch deals when the term ends. You are not locked into a long-term arrangement in the same way as with equity release.
If you are currently on your lender's SVR or your existing deal is about to end, remortgaging to a new competitive rate is particularly advisable, as it can save you money regardless of whether you need additional funds.
