How does equity release work?

You have probably heard by now of people freeing up the equity that is tied up in their home or you may even have friends who have already done it but what exactly is a lifetime mortgage, how does equity release work and most importantly is it safe?  

Don’t worry, you’ll find everything you need to know about equity release right here.

What are lifetime mortgages and equity release?

Equity release or lifetime mortgages as they are also known let you release the money that is tied up in your home, giving you a tax free cash lump sum to use how you want. Many people use the money to make home or garden improvements however it can also used to pay off outstanding debts or loans, aid retirement funding, pay for holidays or help family get on the property ladder.

There are no monthly payments to make like there are with regular mortgages and you still own your home. Instead interest is added to the loan on an annual basis and only paid back once you die, or move into long term care and your house is sold.

How does an equity release plan work?

So now you know what it is, you need to know how equity release can work for you.

how does equity release workThe equity in your home is the difference between the value of the property and any outstanding loans you may have against it.

For example if your house is worth £250,000 and you have a £20,000 mortgage outstanding; the equity would be the difference between the value of the house and the loan - so in this scenario £230,000.

Therefore you would have an equity pot of £230,000 that you could borrow against, the amount of which would vary depending on your age.

Once the equity release mortgage is in place, the interest is added until you either die or move into long term care and the property is sold. So there are no monthly repayments to make, simply a final payment that comes from the sale of the property.

Are there different types of equity release?

When it comes to lifetime mortgages, there are different types of plans that give you varying degrees of flexibility.

A Lump Sum plan for example pays out a single cash sum, whereas a Drawdown scheme pays out an initial tax free sum, then gives you the ability to borrow additional amounts as and when you need them.

If you prefer an equity release scheme that gives you the option to pay off some of the interest accrued, then you may be interested in an Interest Only life time mortgage but if you have health concerns, then an Enhanced lifetime mortgage can pay out more and have better rates, but only for people with certain medical conditions.

And to cater for those who want to ensure an inheritance is left for family, there are Protected equity release plans that let you protect a percentage of the value of the property.

Finally home reversion schemes are also available but with this type of plan, you sell off part or all of your home in return for a cash sum.

Equity release pros and cons

How do I choose the best equity release plan?

Arranging equity release is a simple process and you will be guided throughout however the most important thing is that you get advice from a specialist and speak to your family, as their inheritance will be affected.

We have chosen to work with Age Partnership as not only are they leading equity release specialists, they also compare the whole of the market and have secured special rates with leading mortgage providers that you may not be able to get elsewhere.

Here’s how it works:

  • If you haven’t already, use the free equity release calculator to see how much money you could release from your home.
  • Speak to an Age Partnership equity release adviser over the phone or face to face if you prefer for free advice on all the questions you may have, such as how does equity release work and is it right for you.
  • Your Age Partnership specialist will advise you on the best solution for you and confirm everything in writing so you can take time to come to a decision.
  • A follow up meeting will be arranged and then if you are happy, your adviser will help you complete your application form.
  • Your Equity Release scheme provider will then arrange for your house to be valued.
  • At this stage you will talk to a solicitor to ensure you get independent legal advice. They will check all of the details of the proposed equity release plan and go through everything with you.
  • Once everything has been agreed and the plan is in place, you will receive your tax free cash sum.

It is worth adding that initial advice is free and you only incur costs if you choose to go ahead with the equity release plan.

How long does it take to release equity from my home?

The whole process if you decide to go ahead from your initial discussion to the money being placed in your bank account usually takes between 6 to 8 weeks but it does depend on the plan provider.

Things to remember

Equity release is now starting to play a part in many people’s later life and retirement plans however it is important to remember that the interest accrued and the original loan will be paid back once your house is sold; therefore it will affect any inheritance you may wish to leave to family.

So if you are thinking of releasing equity from your home, it is important to look at all the options available to you to weigh up whether it is the right decision, or whether there are other options available such as opting to downsize your property.

In addition choosing an equity release scheme could affect any means tested benefits you may be receiving such as:

  • Pension credit
  • Savings credit
  • Council tax benefit

Again don’t worry though as your specialist adviser will be happy to go through all this with you as part of the process so you will be clear on how everything works.

Common equity release myths


how does releasing equity work

We know it's a big decision!

That's why we have teamed up with Age Partnership one of the UK's leading equity release specialists.

Find out how much cash you could release by clicking on the button below.

Equity Release Calculator

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