How Does Equity Release Work
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Finding the right equity release plan for your personal circumstances couldn’t be simpler
See below for a range of selected offers from leading UK equity release providers
How Does Equity Release Work?
Many older home owners feel they are ‘cash poor, asset rich’ meaning that although they have little in the way of readily available funds their home may be worth a huge amount and vastly increased in value since they purchased it. Equity release is a method that allows homeowners, typically over the age of 55, to unlock some of the capital tied up in their home without having to downsize or relocate.
There are two different kinds of equity release; Lifetime Mortgages and Home Reversion Schemes.
How does a Lifetime Mortgage work?
Lifetime mortgages work by taking out a loan for a percentage of the market value of your home. You continue to own your home but make an agreement with a lender that the sum you borrowed plus and accumulated interest will be repaid through the sale of your home when you and your partner either die or permanently move to a residential care home.
Types of lifetime mortgage:
- Roll-up Mortgage –With a roll up mortgage you do not need to make any monthly or annual interest repayments instead this amount is repaid along with the original amount you borrowed through the sale of your house. It is important to consider however that as this type of plan involves compound interest the amount you eventually repay may be considerably more than you initially borrowed. All Equity Release Council registered plans however carry a ‘No Negative Equity’ guarantee which ensures you or your estate will never be required to pay more than the amount your home is sold for even if it’s less than you originally borrowed.
- Fixed-repayment Lifetime Mortgage – This plan does not incur any interest rates. During your application you agree how much more than the amount you are borrowing will be repaid to the lender through the eventual sale of your property.
- Interest-only Mortgage – With this option you can pay monthly or annual interest repayments but the original sum you borrowed is still repaid through the revenue produced through the sale of your home.
How does Home Reversion work?
Home reversion works by selling your home to a reversion company or individual. They will pay you less than its current market value but in return will guarantee your right to continue living there until you and your partner both die or permanently move into care. Some plans will charge you a monthly rent but at a reduced rate to what you would normally expect to pay for your house, others will let you stay there for free.Some home reversion schemes give you the option of being paid in a one off lump sum or to receive regular ‘income’ payments.
Costs involved
Most equity release plans will require an initial arrangement fee as well as a fee for the valuation of your property; these costs vary from lender to lender so it is important to shop around to find the best deal for you. You will also have to pay legal costs to your solicitor and if you want to repay your lifetime mortgage before the end of the contract you will most likely have to pay an early repayment charge.
Is equity release right for you?
Equity release is a long-term commitment, so it is a good idea to consider all of your options before committing to a plan.
What is equity release?
Key features include:
- Available to homeowners aged 55 to 95
- Release capital tax free from your home
- You choose how to spend the money
- Lump sum & drawdown options
- You cannot release equity without taking advice
How does equity release work?
Key features include:
- The amount you can release will depend on your age
- The minimum age you can be is aged 55 with 95 as an upper limit
- The minimum property value on which an equity release plan can be secured on is £70,000
- The older you are and the higher the value of your property the more equity you can release
When capital is release by the plan provider, instead of making monthly interest repayments, interest is usually added to the loan. this is known as compound interest. At the end of the plan (usually when either of you pass away or move into long term care) your house will be sold & the equity release plan provider will be paid back from the house sale proceeds with the balance paid to your estate.
What types of equity release plans are there?
Lump sum lifetime mortgage
- Provides a tax free lump sum secured against your home giving you access to a pot of cash.
- Funds released can be used for almost any purpose
- You retain full ownership of your home
- Interest rolls up and is added to the loan. Typically repaid when you pass away or move into long term care
- Some plans allow you to guarantee a percentage of the future value of your home for your loved ones’ inheritance. Other options include the option to pay monthly interest
- You need to take advice before you can take a lifetime mortgage out
Drawdown lifetime mortgage
- Lets you drawdown cash in stages after an initial lump sum
- You will only pay interest on the funds drawn down
- These plans are more flexible so you do not miss out on means tested benefits
- Drawn down funds can be used for any purpose e.g. home improvements, pay for university fees
Home reversion plan
- Need to be aged 65+ to qualify
- Involves selling all or part of your home for a tax free cash lump sum
- The money you receive can be used for any purpose
- Your share of the property will benefit from house price increases
- When you pass away or sell your home, the home reversion provider takes its percentage from the sale proceeds.
For a quick estimate of what you could borrow use the link below:
Equity Release Calculator »
What is the difference between a lifetime mortgage and a retirement interest only mortgage?
Also known as equity release mortgages, like retirement interest only (RIO) mortgages they are only available to over-55s, and the loan is fully paid off when the last person living in the property dies, sells the home or goes into care.
The main difference is that RIO mortgages require borrowers to pass affordability checks and commit to making regular payments for life. With an equity release plan there are no such checks required.
How much equity in my home can I release?
The key thing are your age and the value of your property.
The table below provides an approximate indication of how much equity you can expect to release from your home depending upon how old you are from a lifetime mortgage (Home Reversion Plans may offer a higher amount):
| AGE | % OF EQUITY RELEASE |
|---|---|
| 55 | 25 |
| 56 | 26 |
| 57 | 27 |
| 58 | 28 |
| 59 | 29 |
| 60 | 32 |
| 61 | 33 |
| 62 | 34 |
| 63 | 35 |
| 64 | 36 |
| 65 | 37 |
| 66 | 38 |
| 67 | 39 |
| 68 | 40 |
| 69 | 41 |
| 70 | 42 |
| 71 | 43 |
| 72 | 44 |
| AGE | % OF EQUITY RELEASE |
|---|---|
| 73 | 45 |
| 74 | 46 |
| 75 | 48 |
| 76 | 49 |
| 77 | 50 |
| 78 | 51 |
| 79 | 51 |
| 80 | 52 |
| 81 | 52 |
| 82 | 53 |
| 83 | 53 |
| 84 | 54 |
| 85 | 54 |
| 86 | 54 |
| 87 | 54 |
| 88 | 54 |
| 90 | 54 |
Lifestyle factors can also come into play, so if you are a smoker or are overweight the amount you can release may be increased.
For a quick estimate of what you could borrow use the link below:
Equity Release Calculator »
FREE & no obligation – Equity release service
Equity Release Quotes >>
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Equity release may affect your entitlement to state benefits and will reduce the value of your estate. It may involve a lifetime mortgage or home reversion plan. All content set out in this website is provided for information only and should not be considered as advice. It is strongly recommended that you seek advice of a qualified, independent financial advisor before making any decisions to take out an equity release product.
Equity Release Lenders
- Age Partnership UK Equity Release
- Aviva Equity Release
- Aviva Equity Release Calculator
- Barclays Equity Release
- Bradford and Bingley Equity Release
- Bridgewater Equity Release
- Bristol and West Equity Release
- Coventry Building Society Equity Release
- Dunfermline Building Society Equity Release
- Halifax Equity Release
- Help the Aged Equity Release
- Hodge Equity Release
- Hodge Lifetime Equity Release
- HSBC Equity Release
- Just Retirement Equity Release
- LV Equity Release
- More 2 Life Equity Release
- National Counties Equity Release
- New Life Equity Release
- Northern Rock Equity Release
- Norwich Union Equity Release
- Partnership Equity Release
- Prudential Equity Release
- RBS Equity Release
- Royal Bank of Scotland Equity Release
- Saffron Building Society Equity Release
- Santander Equity Release
- Scottish Widows Equity Release
- SHIP Equity Release
- Standard Life Equity Release
- Stonehaven Equity Release
- Stroud and Swindon Equity Release
Equity Release Links
- Equity Release Benefits
- Equity Release Drawbacks
- Over 60 Equity Release
- Equity Release Advice
- Equity Release Best Buys
- Equity Release For Over 55’s
- Equity Release For Pensioners
- Equity Release How it Works
- Equity Release in Birmingham
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- Equity Release in Dorset
- Equity Release in Essex
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- Equity Release in Gloucester
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- Equity Release in Northern Ireland
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- Equity Release In Scotland
- Equity Release In Wales
- Equity Release in York
- Equity Release and Joint Ownership
- Equity Release Lifetime Mortgage
- Equity Release Loan
- Equity Release Mortgage
- Equity Release Pros and Cons
- Equity Release Providers
- Equity Release Rates
- Equity Release Rules
- Equity Release Schemes
- Equity Release Supermarket
- Equity Release and Taxation
- Equity Release to Buy Another Property
- Home Income Plan
- Home Reversion Scheme
- How Does Equity Release Work?
- How to Release Equity
- How to release equity from your house
- Is equity release a good idea?
- Remortgaging to release equity
- What is equity release?