Is equity release the answer to your interest-only mortgage? However, many people are attached to their homes, or don't want the upheaval of moving. People in this position often have another way of using the value that has built up in their property: borrowing against it and using the money raised to pay off their original mortgage. Naturally, the lender will charge interest. There are two ways to pay it: if you can afford to, you can pay monthly out of your income, which means that your outstanding loan remains the same; alternatively, the interest can be added to the loan - you stop making monthly repayments, and the rolled-up interest is paid, along with the capital, when the property is eventually sold. Either way, you get to stay in your home. Unfortunately, this solution, which is called equity release, won't work for everyone. It depends on your age, the amount of equity you have in your property and the amount outstanding on your interest-only mortgage. The older you are, and the greater your equity in relation to the mortgage, the better your chances. Let's look at a few examples to show when equity release will allow you to stay in your home - and when it won't. Mr and Mrs Lucky, now both 65, bought their home 25 years ago at a cost of £175,000. They had a deposit of £75,000 from a previous house sale and took out an interest-only mortgage of £100,000 to cover the rest. At the same time they took out an endowment plan, which was expected to mature with a value of at least £100,000 and so repay the loan. Now, with their mortgage due for repayment, their home is worth £355,000. Their endowment plan has matured at just £65,000, so they need to find another £35,000 to pay off the mortgage in full. They have equity in their home of £320,000 (£355,000 minus £35,000). At age 65, the maximum they could borrow on a "lifetime mortgage" - the main type of equity release loan - is £97,600, according to Just Retirement, an equity release specialist. This is comfortably enough to pay off their mortgage and stay in their home; it also gives them the option to borrow up to £62,600 more for other purposes or simply to boost their retirement income. What would it cost them to borrow £35,000? The typical interest rate on a lifetime mortgage is currently 6.4pc. Interest is added to the loan every year, so after 10 years it would amount to £30,086. When added to the original loan of £35,000, the total amount repayable would be £65,086. After 20 years the interest bill would be £86,032 and the total amount outstanding £121,032, Just Retirement calculated. It would be 37 years before the equity in their home was wiped out, assuming no rise in house prices. However, if house prices grew at 3pc a year, there would be equity of £412,000 after 10 years and £520,137 after 20 years, so it would take even longer before the equity was eroded. The fee on the mortgage would typically be £500, and they could expect to pay an equity release specialist about £800 for advice. To summarise, Mr and Mrs Lucky could stay in their home, pay off their original mortgage and still have value in their home to pass on to their children when they die. Now let's look at Mr and Mrs Unlucky, also both aged 65. They bought a home worth £230,000 on an interest-only mortgage of £200,000 25 years ago with no repayment plan, instead relying on house price rises to create surplus equity. Their home is now worth £415,000. They have come to the end of their mortgage term and want to carry on living in their home, so must find a way of repaying the outstanding loan of £200,000. At their age, the maximum they could borrow on a lifetime mortgage is £114,125, so equity release would not allow them to repay their loan and stay in their home. The most you can borrow via equity release at 65 is between 25pc and 30pc of the property value, depending on the lender. So, as a rule of thumb, if you put down no deposit when you bought your home and had no other savings or endowment to pay off the capital, your property needs to have more than trebled - or in come cases almost quadrupled - in value for equity release to work. The average home is worth 3.4 times more than it was 25 years ago, according to the Halifax house price index. However, the older you are, the more you can borrow. At 70 the maximum loan is 34pc of the property value, rising to 41pc at 75 and 48pc at 80, according to Key Retirement Solutions, an advisory firm. These figures assume that both members of the couple are the same age. If you have health conditions that affect your life expectancy, you can borrow more. This is because lenders can be more confident that your repayments will not use up all the equity in your home before you die. For example, a 60-year-old couple with minor health conditions could borrow 28.6pc of the property value, or 36.3pc with more serious conditions. At 70 the equivalent figures are 39.6pc and 47.3pc respectively, rising to 45.1pc and 50pc at 75. Either type of enhancement will allow you to borrow half your property value at 80. Equity release is not available on homes worth less than £70,000, experts said, and lenders will always want to have the sole charge on the property, so you cannot use equity release to pay off just a portion of your original loan and let it run on with reduced interest payments. While equity release will often be one way to stay in your home after retirement, it should be used only as a last resort, because the costs mount up so sharply. "Rolling up interest becomes very expensive if it goes on for 25 years," said Tim Eadon of Better Retirement Group. Even though 6pc is a corking fixed interest rate over such a long period, your interest bill will still double every 11 years. All interest rates on equity release loans are fixed for life, he said. He added that advisers would always look first at other ways to pay off interest-only mortgages, such as moving to a smaller home, taking the 25pc tax-free lump sum from a pension or borrowing the shortfall from friends and family - or even taking in a lodger. One way around the problem of interest mounting up is to take out the equity release mortgage to replace your existing loan but carry on making interest payments. This means that the amount repayable never rises, so the equity you can leave to your children is fixed at the outset. "It's not unusual to see the children club together to pay the interest on their parents' mortgage because this way they can protect their inheritance," Mr Eadon said. Steve Lowe of Just Retirement said: "We are seeing increasing numbers of customers use equity release to repay outstanding mortgage loans, usually where there has been a shortfall in the repayment plan, such as an endowment policy. Often they don't have sufficient income to continue with a traditional mortgage repayment. This isn't surprising given they have stopped working and their pension income is less than they had expected. You can also use equity release to pay a regular income. The total amount available to borrow is the same, but you can draw it down as and when you need. Interest is charged only when you actually withdraw each instalment. Andrea Rozario, the director general of the Equity Release Council, said: "For many now facing the scary prospect of an outstanding mortgage which is due to be repaid and with no means of settling this debt, equity release can be a lifeline. It can allow people to stay in the home they love and offer them the option to continue to make monthly payments or, if income is decreasing in retirement, they can opt for the interest to be rolled up, freeing up much needed finances. All lenders that belong to the Equity Release Council guarantee that you will never go into negative equity with an equity release loan.