The process of using Equity Release to buy a new home
Picture this. You would like to move to your forever home, but it is out of your budget. You have an existing mortgage which you would like to pay off, rather than borrowing more, and having larger monthly payments to commit to at this time. Using equity release for purchasing allows you to clear your outstanding mortgage while also obtaining additional funds with which to purchase your new property.
The property sale, mortgage repayment and new property purchase are all finalised at the same time. Cash from your current property along with the equity you release from the new home will give you enough to purchase your new home. What’s more, this is without having to make any monthly payments if you do not wish to.
You may, however, wish to consider paying all or some of the interest off, which is an option for you, either with regular monthly payments or ad-hoc voluntary payments. Our advisers will be happy to discuss payment options with you to ensure you have the best plan available for you.
Once you have found the property you wish to buy, you sell your old property, clear the mortgage and move into your new home. It will be your new home that will then have the equity release mortgage on it. The process is very similar to a property purchase without equity release. The result is that you have the new property you desire without the need to make monthly mortgage payments.
See the below example property purchase made with equity release:
Mr Williams aged 61 and Mrs Williams aged 60
Existing property value – £250,000
Outstanding mortgage – £35,000
When the property sells, they will have a net £215,000 of money.
Based on their ages, the maximum equity release they can achieve is 34% on a standard lifetime mortgage.
With an Equity Release purchase, they could buy a new property with a value of £325,000 (£215,000 + a £110,000 Equity Release mortgage on the new property).
So, they can go house hunting for a property valued up to £325,000.
Plus they know that they will own it and have no mandatory monthly payments to make. Of course, they can also look for a lower value property if they so choose.