There are swathes of older homeowners who might be struggling to fund their retirement, but are sitting on potentially hundreds of thousands of pound of equity tied up in their home. This is where equity release comes in – and our calculator may show how much you could take out.
Equity release – such as later life mortgages – enables older homeowners to unlock some of the money that has built up in their home without selling up and moving out. That cash could help you pay for vital home improvements, buy a new car, help family or spend more time with your loved ones.
However, equity release is not a decision to be taken lightly. Equity release can be expensive and, if you have family or other loved ones, may significantly reduce the amount of money you pass on when you die.
Below, you will find:
- An equity release calculator, showing how much you could release from your home
- Information on the different equity release options
- Alternatives to equity release
Read more: The best equity release interest rates
*This article contains affiliate links that can earn us revenue.
Equity release calculator
Our free online equity release calculator below can give you an indication of how much equity you could release from your home with a lifetime mortgage or home reversion plan. Simply enter a few details including your age and an estimation of your property’s value.
The results are for information purposes only, but they can be a helpful start to the research process.
Who can get equity release?
Equity release is an option for most older homeowners.
However there are some eligibility criteria that you need to meet.
You must:
- Be 55 or older to take out a lifetime mortgage.
- Own a home in the UK which is your main residence.
- Have little or no mortgage – any outstanding balance would need to be cleared using the equity you release.
- Have your home in good condition and worth at least £70,000.
Find out more: ‘Equity release sits alongside my state pension’
What type of equity release plans are there?
Lifetime mortgages enable you to take out a loan against your home. But unlike conventional mortgages you do not need to make monthly repayments and the loan is only repaid when you die or move into care and your home is sold.
Interest on the loan rolls up over the life of the loan meaning the longer it lasts, the more expensive it will be.
There are a number of different types of lifetime mortgage. Which exact type will work best for you will depend on your circ*mstances and your plans for the money.
Below, we outline the options.
Lump sum lifetime mortgage
This is the most straightforward form of lifetime mortgage.
Giving you a single, one-off payment these deals are ideal if there are specific and immediate expenses you need to pay for – such as home improvements, a holiday or helping a family member buy a property themselves.
They may not be the right option if you’re only going to end up parking the money in a savings account paying next to nothing in interest, as a higher rate of interest will already be rolling up on it.
Regular income lifetime mortgage
Rather than paying a lump sum, these deals pay you an agreed income for a fixed period of time, which could be anything from 10-25 years.
After this period you get no further income but interest carries on rolling up on the money you have borrowed until your home is sold.
These arrangements can be helpful if you don’t have enough pension income and could do with a bit more money to cover regular living expenses.
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Drawdown lifetime mortgage
If you aren’t 100% sure how much money you need and when you need it, a drawdown lifetime mortgage can help.
Here the lender agrees a total amount you can borrow – you take an initial lump sum but have access to the remainder as and when you need it.
You could, for example, use your first payment for a new car and then take some more out a few years later for home improvements.
The advantage of this arrangement over ordinary lump sum lifetime mortgages is that you only pay interest on the money you have drawn down.
But the risk is that easy access to a larger pot of money may mean you end up borrowing more than you otherwise would.
Find out more: ‘A lifetime mortgage let us stay in the home we love’
Is releasing equity a good idea?
Whether or not equity release makes sense for you ultimately comes down to how much you need the money and how important it is for you to leave an inheritance.
Although you may feel like you are sitting on a goldmine, accessing the equity that has built up in your home without selling up isn’t cheap.
Interest on lifetime mortgages rolls up over time. While this might spare you monthly repayments, it does mean it’s compounded (where you start paying interest on interest). And the longer you live, the more expensive it becomes.
Reputable equity release providers should offer a “no negative equity guarantee”.
This means that you will never owe more than the value of your home when it’s sold. Nonetheless it could still leave you with little or nothing to leave to loved ones.
How big a deal this is will of course depend on you.
If leaving a sizeable inheritance is important to you, it’s worth proceeding with care. Some products allow you to ringfence some money to preserve as an inheritance, but it does reduce the amount you can release.
Find out more: What is equity release?
Can equity release help with a divorce?
If you and your spouse are going through a divorce and are struggling to divide your assets, releasing equity from the marital home could potentially help.
It might, for example, allow one of you to stay in the family home and the other to purchase their own.
It’s a complicated area though and both legal and financial advice would be essential.
What are the alternatives to equity release with a lifetime mortgage?
If you aren’t comfortable with the cost – or any other element of a lifetime mortgage – it’s worth considering the alternatives.
The cheapest and most straightforward way to unlock the equity in your home is to downsize and buy a cheaper property.
However if that isn’t a viable option for you there are still other approaches, including alternative forms of equity release.
Find out more: Alternatives to equity release
Home reversion plans
Although lifetime mortgages are the most popular form of equity release for older homeowners, there is an alternative equity release product called a home reversion plan.
Home reversion plans are not loans. They instead involve selling all or a portion of your home to the provider in return for cash.
You stay in your home and the provider then takes its share (including house price growth) when the property is eventually sold.
As no interest is payable, providers pay below market rate for the stake in your home that they buy.
Although this form of equity release can still be expensive, particularly if house prices rise, the upside is that if you only sell a portion of your home. It’s therefore easier to ringfence the remainder as an inheritance.
Remortgaging
Remortgaging to release equity is another common way of accessing the money in your home.
If you have, say £50,000 outstanding on your mortgage, you can switch to a new deal. Instead of only borrowing the required £50,000 you could apply to borrow more.
However this option is usually only suitable to younger borrowers. Age limits on mortgages may mean older borrowers won’t be approved. Similarly, the required monthly repayments may not be manageable, especially if you are no longer working.
Are you looking for a new mortgage? Try our mortgage comparison tool
Which is the best equity release company?
The best equity release deal for you will depend on your circ*mstances and your needs. This is why it’s helpful talking to a qualified equity release adviser who will be able to recommend the right provider and product for you.
However there are certain factors you may wish to consider:
- Does the provider offer a no negative equity guarantee?
- Can the product be switched to another property if you decide to move home?
- Does it offer the size loan you need?
- Are fees fixed or a percentage of the amount you are borrowing?
- If you think you may repay the loan early, are the fees for early repayment reasonable?
- Can you make voluntary or partial repayments to reduce your overall costs?
- Can you take the money as income or lump sum if that’s more relevant for you?
- Does your provider offer a drawdown facility?
- Can it provider any inheritance guarantees, by ringfencing some of the equity in your home?
Find out more: The best equity release companies and the best equity release products.
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Equity release is a financial option that allows older homeowners to access the equity tied up in their homes without having to sell the property. It can be a way for retirees to fund their retirement or cover expenses such as home improvements, buying a new car, or supporting family members. However, it is important to consider the potential drawbacks and costs associated with equity release.
Equity Release Options
There are different types of equity release plans available, with the most common being lifetime mortgages and home reversion plans.
Lifetime Mortgages: A lifetime mortgage allows homeowners to borrow against the value of their property. Unlike traditional mortgages, there are typically no monthly repayments required. Instead, the loan and accumulated interest are repaid when the homeowner dies or moves into long-term care, and the property is sold. There are different types of lifetime mortgages, including:
- Lump Sum Lifetime Mortgage: This option provides a one-time lump sum payment, which can be useful for immediate expenses like home improvements or helping family members with a property purchase.
- Regular Income Lifetime Mortgage: With this option, homeowners receive a fixed income for a specific period of time, typically 10-25 years. After the agreed period, no further income is received, but interest continues to accumulate on the borrowed amount until the property is sold.
- Drawdown Lifetime Mortgage: This type of lifetime mortgage allows homeowners to access a pre-agreed total amount of money in stages. They can take an initial lump sum and then withdraw additional funds as needed. Interest is only charged on the amount withdrawn, which can be advantageous for managing costs.
Home Reversion Plans: Home reversion plans involve selling all or a portion of the property to a provider in exchange for a cash lump sum or regular payments. The homeowner retains the right to live in the property until they die or move into long-term care. When the property is eventually sold, the provider receives their share of the proceeds. Home reversion plans do not involve borrowing money and can be an alternative to lifetime mortgages.
Eligibility for Equity Release
To be eligible for equity release, homeowners generally need to meet the following criteria:
- Be 55 years old or older to qualify for a lifetime mortgage.
- Own a property in the UK that serves as their main residence.
- Have little or no outstanding mortgage balance, as any existing mortgage would need to be repaid using the equity released.
- Have a property in good condition and worth at least £70,000.
Considerations and Alternatives
While equity release can provide financial flexibility for retirees, it is important to carefully consider the potential implications. The interest on lifetime mortgages accumulates over time, making the overall cost higher the longer the loan lasts. This can impact the amount of inheritance that can be passed on to loved ones.
It is advisable to seek advice from qualified professionals, such as financial advisers or equity release specialists, before making a decision. They can help assess individual circ*mstances and explore alternatives to equity release, such as downsizing to a cheaper property or considering other forms of financing.
Remember, the best equity release company or product will depend on individual needs and circ*mstances. It is recommended to consult with an equity release adviser who can provide personalized recommendations based on specific requirements.
Please note that the information provided here is based on the search results and does not constitute financial advice. It is always important to conduct thorough research and consult with professionals before making any financial decisions.
