Alternative ways to pay off your mortgage
Of course, there are other ways that you can handle your existing mortgage or release equity to pay off a mortgage. Some of the options available to you might include:
Getting a mortgage extension: You may be able to extend the term of your existing mortgage by speaking to your lender. This might be a preferable alternative if you have a clear plan for paying off the outstanding capital in the coming months or years. Perhaps you intend to downsize your home, or you expect a windfall to come in from selling a family business or other properties you own.
Remortgaging: If your mortgage term is ending and you still have outstanding capital to repay, you could look into remortgaging to give yourself longer to settle your loan. You could remortgage with your existing lender, or a new one entirely. Your existing lender may be able to switch you from an interest-only mortgage to a repayment plan, or they may agree to extend your current mortgage arrangement.
If you remortgage with a different lender, you will have to pass their affordability checks which you might not have had to do previously. Remember, remortgaging may mean you move to a higher interest rate with your new or existing lender.
Retirement interest-only mortgage: A retirement interest-only mortgage (RIO) allows over-55s to unlock a cash lump sum from your home. Like an equity release plan, you do not have to repay the loan until you pass away or move into long-term care as there is no fixed term.
However, this is an interest-only mortgage which requires you to service the monthly interest until your plan comes to an end. As with a standard mortgage, if you default on these repayments then you could lose your home.
The rate you are offered is fixed for life, so your payments will never change. It may work for you if your own interest-only mortgage term is coming to an end and you can afford to continue making these monthly payments throughout your retirement.
A more flexible alternative to a RIO is an interest-only lifetime mortgage. With this type of equity release plan you pay the interest off every month to prevent the loan from growing in size. However, you have the freedom to stop these monthly payments at any time. If you do this, your plan switches to a standard lifetime mortgage. The interest then rolls-up each month until you pass away or move into long-term care.
Downsize: If your home has risen in value since purchasing it, you may be able to downsize to a smaller home or a less expensive area to free up the money you need. Many people intend to downsize in later life as a large family home can be expensive and time-consuming to maintain. This way, you can find a more suitable home for your retirement years – perhaps closer to your family – and pay off your mortgage in the process.