For the majority of us our home is probably our largest asset which is why, regardless of whether there is an outstanding mortgage or not, an increasing number of people in the UK are choosing to release cash from their property.
To qualify for an equity release loan you need to be at least 55 years of age, which means you could either be approaching retirement or already retired; looking to release funds as a way to bolster your income or perhaps take a lump sum that will help make life that little bit easier.
So how much equity can you release from your home?
The maximum amount of equity you can release from your home can be as high as 60% of the property value. However the total equity available to you will depend on your age and the value of your home. Usually the older you are, the more equity you can release.
Releasing equity tied up in your home involves taking out an equity release mortgage. Therefore it’s not a decision to make lightly and should be considered as part of your overall financial planning needs. For example, if you have savings or investments, you may think about using these funds first.
How do I calculate how much equity I have?
To calculate how much equity you have in your home, you need to know your property value and the amount still owed on your mortgage. The equity is the difference between the two. So, if your property value is £300,000 and your mortgage is £50,000, your equity will be £250,000.
Before you make enquiries you may want to use an equity release calculator. They are free, quick and easy to use and will give you a feel for how much you could borrow.
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How do I release money from my house?
Releasing equity is another name for releasing cash from your property; commonly referred to as an “equity release loan” or a “lifetime mortgage”. Unlike a conventional mortgage however there are no monthly payments once the loan is in place; instead the interest charged by the lender is simply added to the original amount of cash you borrowed, so every year your outstanding balance will increase.
The only time the outstanding loan is repaid is when you die or move into long term care and the property is sold.
If the lifetime mortgage is in joint names and one of you dies, the other will of course remain in the property.
Releasing equity from your home is a fairly straight forward procedure providing you receive advice from reputable, qualified experts who can compare equity release across the whole market and advise you based on your own individual needs.
Once you have applied, your property will be valued by the mortgage company and you will need a solicitor to make sure that all the paperwork is in order; your solicitor will also make you aware of your commitment.
Latest news April 2021: Equity release interest rates are at some of their lowest, starting from 2.78% AER and will be fixed for the rest of your life - so now could be a good time to consider your options
What can I do with the money?
In the first 6 months of 2018 alone, UK home owners released a staggering £1.7 billion from their property, so its fare to say that equity release is fast becoming a viable financial planning tool for many households.
But when you’ve released the hard earned cash that is tied up in your home, what exactly can you do with money? Well the simple answer is ‘exactly what you want’.
Whilst some use the money for a car or luxury holiday, the majority of households release equity to pay for home or garden improvements such as a new kitchen or conservatory, or as a way of future proofing their home, adapting it to make life easier through older age.
Others use the money as a gift for family; perhaps to help them get a foot on the property ladder or provide financial assistance with university fees.
Alternatively, as you can drawdown the money as and when you need it, many people use it to help subsidise retirement funds, making life that bit easier financially.
Can I have equity release if I have a mortgage?
Yes you can have equity release if you have an existing mortgage; you would just need to pay off your outstanding loan with the money you release. For example, if you have an existing mortgage of £30,000 and want to release £70,000; you pay off the outstanding balance of £30,000 with the tax free cash sum released, leaving you with £40,000 to spend how you wish
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Will I have anything left to leave my family?
The hope with equity release is that at the same time the loan is increasing, house prices are also rising however it’s worth pointing out that these days, all Lifetime Mortgages come with a guarantee that the amount outstanding will never be more than the value of your home.
The biggest concern most people have is that by the time they die, there will be no equity left as it will be eaten up by the interest charges, leaving very little or nothing to the family; so the million dollar question is how long will we live and what will happen to house prices over that same period?
Let’s take a look at an example
| A property is worth
| Tax free Cash released from property
| *Assuming a 5% rate of interest the loan will have grown in 20 years to
| Average property increase according to Government House Price Index
| ^Amount of cash equity left to beneficiaries
*In September 2020 the average interest rate was 4.11% down from 6.12% in 2015; note also that inflation will have an impact on the true value of cash
So as you can see in this example, based on historic average rates of growth, the value of the property has increased sufficiently to leave a substantial amount of inheritance, even after taking into account the equity release loan.
Try the calculator to see how much cash you could release
Releasing cash from your home questions & answers
Is releasing equity from your home the right thing to do?
Providing you have thought everything through, taken professional advice and discussed everything with your family, an equity release loan can give you a cash sum or income that could lead to a happier retirement.
What age can you release equity from your home?
Most equity release lifetime mortgage providers have a minimum age of 55. Your adviser will help you with this.
How can I release money from my house?
If you are 55 or older and own your own home, you could release up to 55% of your property value. It is important to get advice from qualified experts, either an IFA or a broker who will talk through your options to ensure equity release is right for you and compare the market to find the best schemes based on your individual needs.
How much equity release can I get?
Depending on your age you could release a tax free cash sum of between 20% to 55% of the value of your house. For example:
||Value of your home
|These figures are a guide as to how much equity you could release from your home. We recommend that you should always use the calculator to obtain a personalised illustration.
How much equity do i have in my home?
This will depend on the value of your home and whether you have any outstanding mortgages or loans secured on it; don't forget, the equity you can release will be subject to the maximum amount allowed by the provider.
How do i release equity from my property?
You can release equity from your property with either a Lifetime mortgage, where you will continue to own your property or a Home Reversion Scheme, where you sell all or part of your home. Speak to our experts for advice.
How is home equity calculated?
Home equity is calculated by taking the value of your home, minus any outstanding loans you have against it. For example if a property is valued at £250,000 with a £50,000 mortgage, the equity would be £200,000.
This along with your age will determine how much equity you could release – just take a look at the calculator for more information on how much money you could release.
Thinking of releasing equity?
You can find more information in our specialist section