Using Equity Release to Consolidate Debt
At Rockhopper Later Life Finance we help customers aged 55 and over consider whether equity release may be a sensible route to consolidate other debts. This is a specific and sensitive area of advice where the monthly cash flow benefit of consolidation must be weighed carefully against the long-term cost of rolling up interest on consolidated debts. We present both sides clearly and explore alternatives before making any recommendation.
We work with customers who are:
- Struggling with unsecured credit card or loan debt on a retirement income
- Facing the end of a promotional interest rate on a large credit balance
- Combining debts from a business failure or divorce that are becoming unaffordable
- Considering consolidating a mortgage shortfall or an overdraft along with other debts
- Helping a partner or spouse whose debt position is affecting the household
- Looking at consolidation as an alternative to an IVA or debt management plan
- Seeking advice after a financial shock (illness, bereavement, redundancy) that disrupted finances
Debt consolidation is one of the most delicate conversations in later life mortgage advice. Many customers arrive at it under real pressure, with monthly payments that feel unsustainable. We recognise that pressure and we also recognise that consolidation through equity release can add pressure of a different kind over the long term. Honest advice is particularly important in this area.
Consolidating debts through equity release typically works by using a lifetime mortgage to clear existing credit cards, loans, or overdrafts. The monthly payments on those debts stop because the debts are cleared. The trade-off is that the cleared debts are now part of a lifetime mortgage balance on which interest rolls up. Over 15, 20, or 25 years, the compounding interest on consolidated debt can substantially exceed what would have been paid had the debts been repaid directly on their original terms, even at higher credit card rates.
Typical debt has a defined repayment schedule. A credit card paid off over five or ten years at higher interest rates than a mortgage may actually cost less in total than the same balance rolled into a lifetime mortgage for 20 years. The comparison depends on how long the lifetime mortgage runs, which is in turn driven by how long you live. For a customer at 65 with a long life expectancy, the total cost of consolidated debt within a lifetime mortgage can be considerably higher than the cost of the original debts.
Alternatives deserve serious consideration before consolidation through equity release. Negotiating reduced payments or interest with existing creditors may be possible. Debt management plans and, where appropriate, IVAs are formal arrangements that can reduce monthly payments without using the home as security. Specialist debt advice from a qualified non-profit adviser (StepChange, National Debtline, Citizens Advice) can help identify options you may not have considered. We will signpost you to independent debt advice before proceeding with any equity release consolidation recommendation.
Where consolidation through equity release is the right answer, we make that recommendation clearly with supporting rationale. The situations where it is more often the right answer include: cases where monthly debt payments are genuinely unsustainable on current income; cases where the debts are already secured and consolidation reduces the risk of forced sale; and cases where the customer has understood the long-term cost and has decided on balance it is worth it for the monthly breathing space.
The regulator takes a specific interest in debt consolidation on lifetime mortgages, and our written advice will clearly explain the cost implications of consolidating any given debt into a lifetime mortgage. This transparency is essential and is for your protection.
The Process
Your first conversation is a relaxed and non-judgemental discussion of your current debt position and financial circumstances. There is no cost or obligation, and we will not make you feel worse about the situation.
Before any equity release recommendation for debt consolidation, we will suggest you explore alternative routes including specialist debt advice from a non-profit adviser. If after exploring alternatives equity release is still the right route, we complete a full fact-find and come back to you with a written recommendation that sets out the long-term cost implications transparently.
Every consolidation case is different. Small consolidation of a specific overdue balance is a different conversation from large consolidation of multiple substantial debts, and our advice always reflects the specific situation.
Speak to an Equity Release Specialist
Call 0203 621 5696
Lines open 9am to 5pm Monday to Friday. Alternatively, complete the enquiry form and we will call you back at a time that suits you.