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Derin Clark

Derin Clark

Online Reporter
Published: 15/10/2020

The 1990s saw a boom in interest-only mortgages, but many homeowners will now be coming to the end of their mortgage term still with the full or a large amount of the capital needing to be paid off. This can be a stressful time for homeowners, who risk losing their home if they are unable to repay the mortgage when the term ends and as a result, some have looked towards equity release as a way of repaying their mortgage.

While equity release can be a good way of releasing money built up in a home’s equity, it does have a long-term financial impact and, as such, speaking to an independent financial adviser is essential before committing to equity release. For those who have an interest-only mortgage and are thinking about using equity release to pay off the outstanding mortgage, we’ve looked at whether this is possible and the alternatives available.

Can you take out equity release to pay off an interest-only mortgage?

Equity release can be used to repay an interest-only mortgage, but those considering this option must ensure that their home has enough equity that can be used to repay the mortgage. Fortunately, for many homeowners who took out an interest-only mortgage in the 1990s, the previous two decades have seen a significant rise in house prices, which means that many should have enough equity built up to repay the mortgage. In addition to this, as equity release does not require that the loan is paid back until the borrower moves into a permanent care home or dies, homeowners do not have to worry about monthly repayments.

Those considering using equity release to repay an interest-only mortgage should be aware that many equity release providers have lower valuations than estate agents’ valuations. Also depending on the type of equity release that is taken out, a low loan-to-value (LTV) may be the only option offered. Speaking to an equity release broker will help homeowners to understand which equity release provider may be best suited to their individual circumstances and potentially how much money they could expect to release.

Find out how much money you could release from your home

What are the disadvantages of using equity release to pay off a mortgage?

A big drawback to taking out equity release as a lifetime mortgage is that interest is added to the amount borrowed, which means that when the equity release needs to be repaid, the cost of the repayment not only factors in the initial amount borrowed but also the interest accumulated. As a result of this, equity release can result in the borrower leaving behind very little inheritance from their property when they die.

Saying this, over the last few years the interest rates on equity release have fallen , which means that it is now cheaper to borrow through equity release than it was even a few years ago. As well as this, the range of equity release products available has grown significantly so, for example, there are now options available to borrowers who want to repay the interest during their lifetime.

What other options are available for repaying an interest-only mortgage?

When taking out an interest-only mortgage, the borrower will have ideally had a plan in place to repay the mortgage when the term came to an end. For example, if the homeowner had paid into investments over the years, the money could be used to repay the mortgage.

For those who have not managed to put enough aside to repay the mortgage, another option is to choose a retirement interest-only mortgage . Unlike an equity release plan, a retirement interest-only mortgage will not pay off the mortgage but will enable homeowners to remain in their home and continue making interest-only repayments on their mortgage. The loan is repaid when the homeowner dies of moves into permanent residential care and the house is sold.

Another option for homeowners happy to move and who have seen the value of their home increase significantly is to sell their home and downsize. This option is only viable if the value of the home has increased by a significant amount, which will then enable them to repay their outstanding mortgage and buy somewhere new.


HUB Financial Solutions Equity Release Advice


How much do you know about equity release?

Speak to the team today to find out if equity release could be right for you.


Call 0808 239 8485 or find out more.

Lines are open Monday to Friday 9am to 5pm excluding bank holidays

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The Equity Release Service is provided by HUB Financial Solutions Limited. HUB Financial Solutions Limited. Registered office: Enterprise House, Bancroft Road, Reigate, Surrey RH2 7RP. Registered in England and Wales no. 05125701. HUB Financial Solutions Limited is authorised and regulated by the Financial Conduct Authority. Part of Just Group plc. itself is not authorised by the Financial Conduct Authority for equity release business, so we refer our customers to HUB Financial Solutions’ regulated service.

Any legal or contractual relationship will be with HUB Financial Solutions. There may be a fee for mortgage advice. Your adviser consultation appointment is FREE and carries no obligation. If you choose to proceed with a recommended product, an advice fee of £1,100 would be payable upon completion. will receive a  commission from the lender. HUB Financial Solutions does not offer advice on investments.

Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. will receive a small payment either if you click the links or if you use their services after you click through to their site. All information is subject is subject to change without notice. Please check all terms before making any decisions.



Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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