Equity release refers to a set of items that enable you to access the equity (cash) in your home. Suppose you are above the age of 55. You may release the funds in one lump sum, several smaller sums, or a combination of both.

Your equity is the difference between the current market value and any loans you have secured against it when it comes to the home.

Equity release is the method of converting your equity into cash that an individual can invest in without selling their house.

How does equity release work?

You can release equity from your home in popular two ways:

  • By taking out a loan against a portion of it with a lifetime mortgage, or
  • By selling a portion of it with a home reversion plan.

Lifetime Mortgages

This is by far the most common form of equity release. A lifetime mortgage is a loan that must be repaid until the borrower passes away or enters long-term care. You may opt to set aside a portion of your property’s worth as an inheritance for your relatives.

You have the option of making purchases or allowing the interest to accrue. When you die or enter long-term care, the lender collects the proceeds from the sale of your house.

When seeking a lifetime mortgage, keep the following in mind:

  • The age at which an individual considers a home reversion plan is 55.
  • In most cases, you will borrow up to 60% of the value of your home. The amount you can release is determined by your age and the value of your home. When you take out a lifetime mortgage, the percentage usually increases with your age, and certain providers will give greater amounts to those with some past or current medical conditions.
  • Interest rates must be constant or have a “cap” (upper limit) that is fixed for the duration of the loan if they are variable (Equity Release Council standard).
  • You have the right to live in your home for the rest of your life or until you need long-term care, as long as it is your primary residence and you follow the terms and conditions of your lease.

Home reversion plan

You sell a portion of your home to a home reversion provider with a home reversion plan. You’ll get a lump sum or monthly payments in exchange.

In most cases, you’ll receive between 20% and 60% of your home’s market value (or the part you sell).

When seeking a home reversion strategy, keep the following in mind:

  • Whether you can pay off your debt or equity in one lump sum or several instalments.
  • The age at which an individual considers a home reversion plan is at least 60 or 65 years old to qualify for certain home reversion programmes.
  • The sum of money you’ll get as a percentage of the market value will rise as you get older when you buy the plan, but it can differ from one provider to the next.