How does equity release work?

How does releasing equity work?

There are two main types of equity release – a lifetime mortgage and a home reversion plan. With a lifetime mortgage, you secure a loan against the value of your home. And with home reversion plans, you sell part of the value of your home to your provider.

• With a lifetime mortgage, you'll have a loan that will need to be repaid by your estate, this is usually done by selling your home. They'll have 12 months to do so and will never have to pay back more than the property is worth. 
• With a home reversion plan, you can sell between 25% and 100% of the value of your home to your lender,  in return for a cash lump sum, a regular income or both. They're usually available once you're aged 60+. 

Not everyone will qualify for equity release. You may fail their credit check, not hold enough equity in your home or it may be a property your lender isn't happy to lend against - for example, it may have a thatched roof.

As with any financial product, there are costs involved with setting them up. Read our How much does equity release cost? article to find out more. It’s also important to understand how Equity release interest rates work. And you might be able to remortgage with a standard mortgage.

Equity release isn’t for everyone. It’s a long-term commitment that may affect your entitlement to means-tested benefits. You should always seek professional advice before deciding if it’s right for you. In fact, you can only take out equity release products through a qualified financial adviser.

How long does equity release take?

On average, the whole equity release process can take eight to twelve weeks. The exact time depends on the kind of product you’ve gone for.

The first step is to speak to an adviser to make sure that equity release is the right choice for you. They’ll also help you find the right provider and product, and guide you through the rest of the process. You’ll then need to submit your application.

Your provider will value your home and you’ll find and appoint a solicitor. It’s a good idea to use one with equity release experience – they’ll help you avoid or at least speed up any delays, which can happen if:

• your property isn’t registered at The Land Registry
• you’ve set up Enduring or Lasting Power of Attorney for someone else
• you have:
  • a Leasehold Property
  • a property that’s subject to a Trust
  • a buildings insurance schedule

Your solicitor will be able to help you with all of these. Once all the legal checks are done you should get a completion date. You’ll need to pay any legal fees too.

How does equity release work when you die?

That depends on the kind of equity release product you’ve chosen, and if you're the last surviving borrower living in your home. If no one else will be living in the home:

• With a lifetime mortgage, you'll have a loan that will need to be repaid by your estate. This is usually done by selling your home. They'll have 12 months to do so and will never have to pay back more than the property is worth. 
• With a home reversion plan, your provider owns part of your property. They’ll usually need the property to be sold after your death.

In both cases your beneficiaries will get any money left, but they won’t benefit from the full value of the property. If they want to keep the property, they may be able to pay off the debt. If you choose to take out a lifetime mortgage, you might be able to borrow a lower amount and take out inheritance protection, which will guarantee that they’ll always get a fixed amount of the value of your home after your death.

What happens if I go into care?

If you move into long-term care and are the last surviving borrower, the lifetime mortgage will need to be repaid. This is usually done by selling your home and it will need to be sold within 12 months. If you move into care and your partner is still living at the house, then your lifetime mortgage or home reversion plan will continue as normal. 

What should I do next?

You can only take out equity release through a qualified financial adviser. Before you meet with them, you might want to read more about it – including our articles about:

• Is equity release a good idea?
• Frequently asked questions about equity release

So that’s how equity release works. But how does equity release work on your home? Well, if you want to see how much equity you might be able to release from your property, try our Equity Release Calculator.