You can use our equity release calculator to find out how much you could release from your home and talk to a professional advisor about if it is suitable for your circumstances.
What is an equity release?
Equity release is a financial product that allows homeowners, typically aged 55 and over, to unlock some of the value tied up in their property without having to move out.
It provides a way to access funds either as a lump sum, in smaller amounts over time, or a combination of both.
The money released can be used for various purposes, such as supplementing retirement income, home renovations, or helping family members financially.
Pros:
- Access to Tax-Free Cash – The money you receive is tax-free and can be used however you wish.
- No Need to Move – You can stay in your home while accessing its value.
- Flexible Payment Options – Some plans allow voluntary payments, while others do not require repayments until you pass away or move into long-term care.
- No Negative Equity Guarantee – Many providers offer this guarantee, ensuring that you or your estate will never owe more than the property’s value.
Cons:
- Interest Can Roll Up – If you don’t make repayments, interest compounds over time, significantly increasing the debt.
- Reduces Inheritance – The amount left for your beneficiaries will be reduced.
- Impact on Benefits – Receiving a lump sum may affect means-tested benefits.
- Early Repayment Charges – Some plans come with hefty fees if you repay early.
Difference Between Equity Release and Lifetime Mortgages
- Equity Release is a general term that refers to different ways of unlocking cash from your home, with the most common method being a lifetime mortgage.
- Lifetime Mortgages are a type of equity release where you borrow against your home’s value, with interest rolling up over time. The loan is repaid when you die or move into long-term care.
- Home Reversion Plans, another form of equity release, involve selling part or all of your home to a provider in exchange for a lump sum or regular payments, while still being able to live in the property rent-free.
Are Equity Release Interest Rates Higher or Lower Than Normal Mortgages?
Equity release interest rates are generally higher than standard residential mortgage rates because lenders take on more risk.
Unlike traditional mortgages, where borrowers make regular payments, equity release loans are typically repaid only when the borrower passes away or moves into care.
Rates usually range from 5% to 8%, compared to 2% to 4% for standard mortgages, depending on the provider and market conditions.
How Does an Equity Release Work?
- Application – You apply through a provider, usually with the help of a financial advisor.
- Property Valuation – The provider assesses your home’s value to determine how much you can release.
- Offer and Legal Process – If approved, you receive an offer and must seek independent legal advice before signing the agreement.
- Funds Released – Once legal checks are complete, the funds are released as a lump sum or in smaller payments.
- Repayment – No repayments are required in most cases until you pass away or move into long-term care, at which point the loan and interest are repaid from the property’s sale.
When Equity Release Is A Good Idea:
- If you need a large sum of money to cover essential expenses, such as healthcare or home modifications.
- If you have no plans to leave an inheritance or are comfortable with reducing the amount passed down.
- If you have no other borrowing options, such as remortgaging or downsizing.
When Equity Release Is A Bad Idea:
- If you rely on means-tested benefits that could be reduced or lost.
- If you may need to move in the future and the provider does not allow portability.
- If you want to leave a significant inheritance to your heirs, as equity release will reduce the value of your estate.
How to Release Equity from Your Home Using an Equity Release in Five Simple Steps
- Consult a Financial Advisor – Speak to a qualified equity release advisor to discuss your options and whether equity release is right for you.
- Choose a Provider and Plan – Select a provider that offers terms suitable to your needs, ensuring they are part of the Equity Release Council.
- Get Your Property Valued – The lender will arrange for an independent valuation of your home to determine how much you can release.
- Seek Legal Advice – A solicitor will help you understand the legal implications before you commit to an agreement.
- Receive the Funds – Once all checks are complete, the money will be released, either as a lump sum or in stages, based on your preference.
Equity release can be a useful financial tool, but it’s essential to understand the long-term impact before proceeding. Always seek professional advice to ensure it’s the best option for your situation.