How much does equity release cost?

Unlocking the money that is tied up in your home with equity release could provide a tax free cash sum to use how you want. Perhaps you would like to supplement your retirement income and make life a bit more comfortable, carry out home improvements like a new kitchen, pay off outstanding loans or help family get a foot on the housing ladder.

Regardless of your reason for choosing equity release, you first need to understand if it is the right thing to do and how much will it cost?

How does releasing equity from your home work?

You can release the equity that is tied up in your home either with a Lifetime Mortgage or a Home Reversion Plan.

Lifetime Mortgage – this type of equity release plan tends to be the most popular choice. To apply you need to be a homeowner, live in the UK and be at least 55 years of age.

A loan is secured against your home that incurs interest. There are no monthly repayments and you still own 100% of your property. The loan is only repaid once you have either died or moved into long term care.

Home Reversion Plan – To apply for this type of equity release plan you need to be a home owner, living in the UK who is at least 65 years of age.

You agree to sell part or all of your home. There is no interest charged and you can live in your property rent free for life, even though you no longer own 100% of it.

When you die or move into permanent care, the house is sold and the equity release provider receives their share of the proceeds, based on the percentage of the property they own.

Read more about how equity release works

equity release interest rates 2019

How much will it cost me?

The cost of equity release falls into two areas:

  • The initial fees to arrange and put the equity release plan in place
  • The interest charged on the loan

Remember the loan and the equity release interest will only be paid off when you die or move into care but as this will affect your family’s inheritance, it is important to understand how much this could be.

What is the initial cost of equity release? 

According to the Equity Release Council, the average cost of arranging equity release is between £2,000 to £3,000 and consists of the following payments:

  • Advice
  • Administration and application fees (depending on the lender)
  • House valuation
  • Solicitors fees for providing independent legal advice

The point to remember here is that by talking to an industry expert like Age Partnership, your initial advice is completely free of charge; you only pay if you decide to go ahead.

The amount charged is typically 1.95% of the cash sum you release or a minimum fee of £1,395, which is only payable once your equity release plan is in place.

So the benefits of choosing a company like Age Partnership are as follows:

  • They compare the whole of the equity release market , so they’re not tied to any particular mortgage provider
  • They have arranged special rates with lenders that you may not be able to get elsewhere
  • They work on your behalf agreeing reduced set-up costs with lenders and can even secure cash back payments with some providers once your equity release plan is in place
  • Their initial advice be it over the phone or face to face is completely free
  • Your Age Partnership advisor is there to guide you through the whole process

Try the Equity Release Calculator

Should I downsize or choose equity release?

Equity release interest rates

In addition to the initial set up costs of arranging everything, it is important that you are also clear on the equity release interest rate charged and how much this could mount up to over the years.

Equity release interest rates can either be fixed for the life of the plan or variable but with a capped limit.

Currently mortgage providers charge between 5% to 6% and the interest is compounded either on a monthly or yearly basis, meaning it grows every year.

If you prefer to keep your interest as low as possible, you can choose an equity release lifetime mortgage that lets you make repayments against the interest, so the overall loan won’t be as high when it’s repaid.

Also if you choose the drawdown facility which lets you take an initial amount and then further cash sums as and when you need it, you could be charged a different equity release interest rate for each payment based on the rates at that particular time. It’s important to remember that if you do opt for one of these schemes, you only pay interest on the money you have drawn down, not the money held in reserve.

Read more about the different types of lifetime mortgages available to you

How does the compound interest on equity release work?

Compound equity release interest may sound confusing but it’s actually pretty straightforward. The way it works depends on whether the mortgage provider you use charges interest on a monthly or annual basis:

Monthly interest lifetime mortgages:

  • You secure the loan against your property with the lifetime mortgage, agreeing either a fixed equity release interest rate or a capped one
  • Interest is added to the loan after the first month
  • The following month interest is added based on the original loan plus the interest accrued in the first month
  • The following month, interest is added again based on the original loan plus the interest added over the first two months ...... and so on.

Yearly interest lifetime mortgages

  • You secure the loan against your property with the lifetime mortgage, agreeing either a fixed interest rate or a capped one
  • Interest is added to the loan after the first year
  • The following year, interest is added again based on the original loan plus the interest added in the first year .... and so on.

Try our free equity release calculator

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.

A Simple Example

Year Loan 6% Interest Rate Total owed
1 £50,000 £3,000 £53,000
2 £53,000 £3,180 £56,180
3 £56,180 £3,370 £59,550
4 £59,550 £3,573 £63,123
5 £63,123 £3,787 £66,910
This is the Equity Release Council’s example of how the annual payments on a £50,000 loan with an interest rate of 6% could work

So basically regardless of whether the interest is added monthly or yearly, it grows much quicker than with a standard mortgage, but more so with the monthly interest equity release plan.

Do keep in mind though that although your equity release loan will be growing, hopefully so will the value of your property and therefore the equity available to you.


equity release interest rates

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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