Discover your lifetime mortgage options
How Does Equity Release Work?
Equity release allows homeowners aged 55 or over to release tax-free cash from the value of their property. Arranged through an equity release lender, homeowners can release this money as a single lump sum or through multiple lump sums via a drawdown plan as part of their retirement planning.
What is equity in a house?
The 'equity' in your house is the current value of your home, minus any mortgage or loan secured against it. In short, it's the value of the part of your home that you own outright.
You can read more about what equity release is here.
Do you have to make monthly repayments?
You don't have to make monthly repayments on your lifetime mortgage, but you can do, if you wish. All our lifetime mortgages allow you to repay part of the loan each year (referred to as optional partial repayments) without paying early repayment charges.
Interest servicing option
If you'd like to reduce the overall cost of borrowing your independent adviser may suggest an interest serviced lifetime mortgage which offers you an interest rate discount provided you make regular monthly repayments of at least 25% of the monthly interest.
If you don't make optional repayments, the interest builds up on your loan each year and is charged on the total amount you've borrowed plus any interest added previously. This is known as compound interest and quickly increases the amount you owe. This compound interest is added to your loan once a year.
What to look for when choosing a lifetime mortgage
When releasing equity for retirement, it's important to find a lifetime mortgage that’s regulated by the Financial Conduct Authority, from a lender that's a member of the Equity Release Council.
It's also important to check there's a “No negative equity guarantee”. This ensures that you or your estate will never owe more than the value of your property when it is sold, even if the property value decreases. This means that any remaining debt will be written off, protecting your loved ones from having to cover the shortfall.
Finding advice
Getting a lifetime mortgage is a decision that requires careful consideration. That's why it's important to get the right advice before you go ahead. You'll need both an equity release and legal adviser to apply for a lifetime mortgage. There are several independent industry bodies where you can search for regulated specialists who can help.
Equity Release Council | The consumer centric trade body of the industry
There are also several comparison websites for financial professionals, which you can explore to find the right adviser for you:
What's the process for releasing equity?
Equity release is one of many financial planning tools, and it's important to ensure it aligns with your needs and financial goals. It will usually be repaid at the time of your death or if you move into long-term care so it's a good idea to talk about it with loved ones, who it may affect in the future.
Here is an illustration of a typical journey of a lifetime mortgage applicant:
Step 1
Find out if you're eligible
Speak to an independent qualified equity release adviser to find out if you meet the criteria. They will also talk you through your options and explain what's involved.
Step 2
Talk to your loved ones
A lifetime mortgage may or may not be right for you. You may wish to discuss it with anyone it may impact in the future, like your family. They can also join you when you meet your adviser, if you wish.
Step 3
Get your tailored recommendations
Your equity release adviser will take your details and provide a recommendation tailored to your situation. It may seem that they are asking many questions to ensure they have all the facts, but this can make the application process smoother.
Step 4
Complete the application
If you're happy to proceed, your adviser will complete your application with you. You will also need to appoint a solicitor as your legal adviser.
Step 5
Get your home valued
The lifetime mortgage lender you have chosen will arrange for your property to be valued. There maybe costs associated with conducting a valuation. Your independent adviser will share all fees and costs with you.
Step 6
Receive an offer
Once your home has been valued and your application processed, an offer will be sent to you, your solicitor, and your adviser.
Step 7
Check the details
Go over the offer and make sure you're happy with everything. Your adviser should be able to answer any questions you may have.
Step 8
Receive your money
Your solicitor will finalise the legal documents, and the money you release will be paid to you via your solicitor.
You can read about the typical journey of a lifetime mortgage applicant here. You'll also find information on where to get independent advice and the application process.
Things to consider with a lifetime mortgage
Equity release is a loan secured against your home, and so it may not be suitable for everyone. We encourage consumers considering it to investigate the pros and cons of equity release, as well as the following:
- Having the funds for an independent equity release and legal adviser
- Taking your time when you get an offer and don't be pressured to decide
- A lifetime mortgage may impact your state pension and benefits
- Compound interest accrues throughout your lifetime mortgage
- Your accrued interest and loan are repaid when you die or move into long-term care
Is a lifetime mortgage right for you?
Taking out an equity release product, like a lifetime mortgage, is a significant commitment. There are alternative ways to raise cash that you may wish to consider alongside equity release:
- You could downsize or move to a cheaper property
- Home improvement grants can help with upgrades
- Taking in a lodger could be a way to raise extra funds
- Other forms of finance could be considered, visit MoneyHelper for free and impartial information
Equity release FAQs
Equity release is one of many later life borrowing options and it’s changed considerably over the years. To help you decide if this tool is right for you, we’ve answered the most common questions related to the overall process.
View equity release FAQs
What do people use equity release for?
There are a number of reasons that people choose to release equity in their home, like home improvements or supporting family via gifting. There are pros and cons to equity release too.
View our 'What is equity release' pageFind flexible ways to help finance your retirement
If you'd like to find out more about equity release, download the free brochure ‘Your guide to lifetime mortgages'. It covers what people use equity release for, if it's safe, and what to consider before approaching an equity release broker.
Download guide