Need Help Understanding How an Equity Release Loan Works?

If you’re considering an equity release loan, there are a few options to choose from. You may choose to only take what you need or draw as large a lump sum as possible. Or, you might prefer to take regular payments to supplement your pension.

What Form of Borrowing Is Equity Release?

Equity release is a form of borrowing that lets you release the equity of your home, either as a lump sum or monthly payments. You won't repay the loan until you have died, where your home will likely be sold to cover the cost of the debt.

Equity Release enables you to release cash from your property. There are two option, a drawdown lifetime mortgage is allowing you to release the money monthly or a Lifetime mortgage Lump Sum which pays the released cash in one payment to your account.

We’ll take you through the different options to help you narrow down the one that’s right for you.

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

• - How Does Equity Release work?
• - 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.

Equity Release: What Is a Lifetime Mortgage?

A lifetime mortgage is an equity release loan that lets you borrow up to 60% of the value of your home, without selling it. Exactly how much you can borrow will depend on how old you are, and how valuable your property is.

You then don’t have to make repayments – instead, interest builds up. When you then die or move into long-term care, the debt is payable from your estate – the likelihood being that your home will have to be sold to cover it. However throughout, the property remains yours until this happens.

You’ll get the money as a lump sum, which you can use to either purchase an additional annuity or spend it on whatever you want.

Equity Release: What Is a Drawdown Lifetime Mortgage?

A drawdown lifetime mortgage only differs in that you don’t get given the money upfront. Instead, you have what is essentially a credit limit. You can withdraw (“draw down”) any amount up to this limit whenever you want.

A drawdown mortgage is much better if you don’t need to borrow a lot immediately. That’s because you’ll only build up interest on the amount you’ve actually borrowed, not the total limit that’s been agreed. So, if you take out less upfront, your interest won’t build as quickly, which leaves more money once you’ve passed away or gone into care for your estate.

Equity Release: What Is a Home Reversion Plan?

If you instead choose a home reversion plan, you’ll sell your house to the lender, rather than keeping it in your name. The price you get won’t be for the full property value, and it could be as low as 20%, depending on various factors. You’ll still have the right to live there until you pass away or move into care.

Again, with home reversion, you have two options on how to take the money. You can either choose the cash sum up front, or you may prefer to receive regular payments as an income, to help you out on an ongoing basis.

When you die, or when you move into a care home, the lender will sell your property on the free market and keep the funds generated.

With both lifetime mortgages and home reversion plans, you have the option to ring-fence part of your property and stop it from being included in the agreement. This means you’ll get less money, but it protects it to pass on to your family once you’re gone.

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.