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Releasing equity from your home

If you’re at retirement age and own a home, you could consider using equity release to access money that’s tied up in your house.

The amount of equity in your home is based on how much your home is worth and home much you owe on your mortgage.

How does equity release work?

Equity release is only available to people who are at retirement age. It involves releasing money that’s tied up in your house. The money can be released as a lump sum or you can set up access to a flexible borrowing facility.

The amount of money you’d be able to release will depend on your age and the value of your home. Sometimes your health will be taken into consideration as well.

For new retirement mortgages or interest only lifetime mortgages affordability will also be considered.

What can you use equity release for?

Equity release can be used for a variety of reasons. It’s commonly used for home improvements, supplementing income or paying for long-term care. However it can be used to help you manage your debt or to repay a mortgage.

Is equity release right for you?

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What are equity release plans?

There are four different types of equity release plans:

Interest only lifetime mortgage: This allows you to borrow money against your home while still living there. You’ll have the option to pay all or part of the monthly interest. When your home is sold, your mortgage will be repaid. You have the option to switch this to a ‘roll up lifetime mortgage’ that doesn’t require monthly repayments at anytime.

Lifetime mortgage: Allows you to borrow money against your home while still living there, but you don’t need to make repayments. Instead, the interest is added to your mortgage. When your home is sold both are repaid. 

Home reversion plans: Lets you sell your home, or a share of your home, in return for a lump sum of money. You’re able to live in your home rent-free for the rest of your life.

Retirement mortgage: A new type of lifetime mortgage that’s designed to bridge the gap between a residential mortgage and an equity release plan. A retirement mortgage is secured against your home and is repaid only when your property is sold.

These are breakdowns of the types of equity release available. It’s important to know that there are features and risks involved with each type and to fully understand these, you need to ask for a personalised illustration. This will outline the features and risks that are relevant to your situation and equity release plan. If you’re considering equity release, it’s important to get expert advice first.

Things to consider with equity release

Releasing equity from your home is a big decision and there are many things to consider before going ahead with it:

  • If you’re not making interest payments the costs can increase the amount of your mortgage quickly and your borrowing will be higher
  • Equity release can affect your tax position and your entitlement to means-tested benefits, such as income support and universal credit
  • If you release equity from your home the overall value of your estate will decrease and this will affect the amount of inheritance you may leave
  • You should think carefully before securing debts against your home
  • The value of your property can increase or decrease in the future
  • There may be alternative options available such as downsizing to a smaller property

To understand the features and risks of any plan ask for a personalised illustration.

What are the alternatives to equity release?

You shouldn’t decide to release equity from your home without getting expert advice first. It could be that there are better alternatives available. Some of these could be:

  • Selling your property and moving to a cheaper one
  • Using existing savings and investments
  • Making sure you’re claiming all available benefits
  • Home improvement grants

Free equity release advice

Most companies will charge for advice on equity release however we have our own equity release team who offer advice free of charge. StepChange Financial Solutions can offer you expert advice on residential mortgages, retirement mortgages and equity release and whether it’s the right option for you. Contact our team to book a free appointment or email our Financial Solutions helpline.

What is an equity release calculator?

Many equity release advice companies use equity release calculators to give you an idea of how much money you’ll be able to release from your home.

Equity release is a complicated process that needs to be tailored to you. At StepChange Financial Solutions we don’t use equity release calculators due to their limitations. We have a video explaining more about this and the other reasons we don’t use equity release calculators.