Equity Release Explained: How It Works, What It Costs, and What to Consider First
Equity release lets homeowners aged 55+ unlock tax-free cash from their home without moving out. Most plans are lifetime mortgages: you borrow against your property, usually make no monthly repayments, and the loan plus the interest added over time is repaid from the sale of your home when you die or move into long-term care.
This guide covers how equity release works, what it can cost and what to consider first. It is information, not financial advice. For a wider look at benefits and risks, see our main equity release guide.
How equity release works
There are two main types:
- Lifetime mortgage. A loan secured on your home. Interest is added to the balance, and the loan is repaid when the last borrower dies or moves into long-term care. These make up more than 99% of new plans.
- Home reversion plan. You sell a share of your home, from a partial share up to all of it, for a lump sum below market value and keep the right to live there rent-free. These are now rare.
Equity release is regulated by the Financial Conduct Authority (FCA). You must receive advice and independent legal advice before taking a plan. Lenders set a minimum property value, often from around £70,000.
How the money can be paid out
- Lump sum. All the money upfront, with interest charged on the full amount from day one.
- Drawdown. An initial amount plus a reserve to draw from later. Interest only builds up on money you take, so the total cost is often lower.
- Payment term lifetime mortgage. Offered by some lenders from age 50. You make monthly payments for a set period, which reduces the interest that builds up, but missed payments can put your home at risk.
How much equity release could give you
The older you are, the higher the percentage of your home's value you may be able to release. As a rough guide, MoneyHelper says a lifetime mortgage will likely only offer around 10% to 20% of a home's value at age 55. Lenders set their own limits for older ages, so there is no single figure.
Our equity release calculator gives an indicative range. It is a guide only, not a quote.
What equity release costs over time
Lifetime mortgage rates are normally fixed for life and have typically ranged from around 6% to 9.5% a year, depending on lender, age and product features.
Because interest is charged on interest already added, the debt grows rather than shrinks. For example, £100,000 at an assumed fixed rate of 7% a year, with no repayments, would grow to roughly £390,000 after 20 years.
A fixed rate protects you if rates rise, but you would not benefit if they fall. Our guide to equity release costs explains the upfront fees and early repayment charges.
Safeguards to know about
Lifetime mortgages from Equity Release Council members must include:
- A no-negative-equity guarantee. Provided the plan's terms are met, you or your estate will not owe more than the home sells for.
- A right to remain in your home for life, or until you move into long-term care, provided you keep to the plan terms.
- A right to move the plan to another property the lender accepts.
- Voluntary repayments without a charge, often up to 10% of the amount borrowed each year.
Risks and alternatives to consider first
Equity release can provide money without monthly repayments, but it reduces your estate and can affect means-tested benefits. Savings above £10,000 can reduce Pension Credit, and some benefits stop above £16,000. Our guide to lifetime mortgage drawbacks explains more.
Alternatives worth understanding include downsizing (see our comparison of equity release vs downsizing), a retirement interest-only (RIO) mortgage, and using savings, pension income or help from family.
Not sure where to start?
Only an FCA-regulated adviser who looks at your full circumstances can give a personal recommendation. Our guide to finding a regulated equity release adviser explains what to check first, or explore all your later-life options.
Not sure which option fits your circumstances?
Frequently asked questions
Do I have to make monthly repayments on equity release?
Not usually. With a standard lifetime mortgage, interest is added to the loan and everything is repaid from the sale of your home when you die or move into long-term care. Some plans let you pay the interest or make voluntary repayments, which slows how much the debt grows.
Can I stay in my home for the rest of my life?
Plans from Equity Release Council members include a right to remain, so you can live in your home for life or until you move into long-term care, provided you keep to the plan terms, such as keeping the property insured and in reasonable repair. Joint plans run until the second borrower dies or moves into care.
Could I end up owing more than my home is worth?
Plans that meet Equity Release Council standards include a no-negative-equity guarantee. When your home is sold, you or your estate will not have to repay more than the sale value, even if the loan and interest have grown larger. Conditions apply, so check the plan terms with an adviser.
How does equity release affect what I leave to my family?
Because the loan and interest are repaid from your home, equity release usually reduces what you can leave behind, sometimes significantly over a long period. Some plans let you protect part of your home's value as an inheritance, usually by borrowing less. See how equity release affects inheritance.
Can I move house or repay equity release early?
Most lifetime mortgages can move to a new home if the lender accepts it as security. If it does not, or you choose to repay early, an early repayment charge may apply, although many plans waive it in certain situations. See our guide to moving house with equity release.