Equity release is a way of taking the cash out of your home while you still live in it.  

During retirement people often only have enough money to live off and are cash poor when it comes to things like luxury holidays, which they finally have the time to take.  But what many people do have is a lot of cash – ‘equity’ – tied up in their house.

So, the question is how you get the equity out of your house?

Before you look at equity release, one question to answer first is, can you downsize? Look at the bedrooms you have and space.  Can you sell your house and buy a smaller, cheaper home to free up the cash you need?  It’s the easier and cheaper way to release equity. 

Your equity is the total market value of your home, minus any mortgage you haven’t yet paid off.  Essentially, it’s the sum you’d walk away with if you sold your home for cash. 

If selling your home is not an option for you, but you need to free up some cash, if you’re 55 or over, you own your primary residence outright, you can consider an equity release scheme.  

The main draw with equity release is it provides outright home owners a sum of money to spend on travel or extras that would improve their quality of life, while enabling them to live in their home.  It does sound attractive, but it can be a very expensive way of accessing a lump sum of money. 

Also Read: Why is a Lifetime Mortgage the most popular Equity Release?

What are the pros 

  • You retain ownership of your property – you get to keep it in the family. If circumstances change you can sell it, or you and your family members can continue to live there. 
  • Freedom to use the money tied up in your house – for a better quality of life for travelling, home improvements, gifting to children before you pass away, etc. 
  • Most providers will give you a no-negative-equity guarantee* – meaning you never owe more than what your house is worth. 
  • Some providers will help you make an inheritance plan – by protecting a percentage of your property, or let you pay some interest as you go. 
  • You can use an equity release lifetime mortgage to pay-off a standard or interest-only mortgage.
  • In most instances an equity release lifetime mortgage is portable – allowing you to move house and transfer it across.   

*Ensure you seek professional independent advice, and the company is approved by the Equity Release Council.

What are the cons 

  • Reduces inheritance – equity release to free up money from your property reduces the amount of inheritance you can pass on.   
  • It can have an impact on your state benefits and personal tax position – you must check this with an equity release specialist.
  • With a lifetime mortgage you accrue interest – it charges compound interest.  If you release a large sum at 55 or 60 years old and live into your 80’s or beyond, there may be nothing left if you hope to leave some inheritance to family or friends.  Look at an Interest Paying Mortgage as an option. 

Also read: Is Equity Release a good idea?