A Comprehensive Guide to How Equity Release Works

Equity release is a type of loan that you can take out against your home. It’s a popular option in the UK for customers who want some cash to help during retirement. According to the Equity Release Council, around 86,000 customers have taken out an Equity Release loan in the last year. 

How Does Equity Release Work?

Equity release lets you borrow the money tied up in your home, without having to repay it until you've died. The amount you can borrow will depend on your age and how much equity is in your property.

If you want to know whether Equity Release is right for you, we’re here to help.

Looking for other information on Equity Release? This guide has info on 'How Does Equity Release work?' We have also written extensively about:

• - What is Equity Release?
• - Pros & Cons of Equity Release
• - Equity Release Scams to be aware of
• - What age do you qualify for Equity Release?

We update all our guides regularly. If you are researching Equity Release and we haven't got an exact guide that helps you, keep coming back as we update daily.

What is an Equity Release loan?

An Equity Release is a type of loan. You’ll take it out against the value of your property, and it’ll either take the form of a lifetime mortgage or a home reversion plan. Either way, you’ll have access to cash lump sum, or you’ll receive regular payments, without having to make immediate repayments.

Equity release is useful (we have written about Equity Release pros & cons) if you need money to supplement your retirement income, or you need to pay for your own care, but it does have drawbacks too and will mean you’ll have less inheritance to leave to your loved ones.

It’s usually better to consider other finance options first too, including downsizing your home. But if you can’t move to a smaller property, or you just want to keep living in your home for another reason, then equity release could be the answer.

Equity Release: How Does It Work?

Depending on the type of equity release you choose, it works a little differently. There are lifetime mortgages, where you’ll keep your home but build up a loan with interest that must be paid from your estate.

Or, choose home reversion where you sell your home (below market rate) but keep the right to live there. Both have their pros and cons, so take the time to read our further guides to find out more.

Whatever happens, you can build up a lot of debt using a lifetime mortgage or a home reversion plan, but never to the point that your family will have to pay out of their own pocket, unless you end up as part of a scam deal. As long as you choose equity release with a reliable company registered with the Equity Release Council, you will be fine.

What Is the Maximum Equity Release Loan You Can Apply For?

The maximum loan you’ll be able to apply for will depend on your circumstances, including how valuable your property is and how old you are. Any pre-existing medical conditions could also play a part.

Usually, you won’t be able to take out more than around 60% of the value of your property, and it’s often less. Whichever you choose, you should only ever opt for a plan that has a ‘no negative equity’ guarantee.

This means that repayments won’t ever exceed the value of your property so that your loved ones don’t have to fork out from their own money to cover the costs.

If you want to know more about equity release loans, including implications on your credit file, bad credit loans and so on, we’ve got a lot more information available.

How Can Money Savings Advice Help You With Releasing Equity?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.