When you buy a home instead of just renting, you build up equity. As time goes on, you slowly start to pay off the principal, meaning you own more of your property outright. In some cases, you may completely pay off your mortgage.

What you don’t have in this scenario is liquid cash. As you get older, however, you may need more money in order to support your retirement or even to pay for your care. You could sell your home, but then you wouldn’t have a house to live in and would have to move (potentially much further away from where you’ve built a life).

So, what other solution do you have? For many, that’s an equity release mortgage.

This guide introduces you to equity release mortgages, your options, and their drawbacks. This article will also answer top questions like, can you get equity release if you have a mortgage? What’s the difference between equity release and a lifetime mortgage?

This article will cover all those pressing questions and more. Of course, if you want specific advice related to your situation, you’ll want to get in touch with one of our certified and specialised mortgage brokers.

What is an equity release mortgage?

Equity release is one of the ways that you can unlock the value of your home. It’s only available to those who are aged 55 or above. It’s essentially there to help people manage their retirement years and high, unexpected costs without having to move out of their homes.

So, what is an equity release mortgage? It’s a special type of mortgage that lets you extract value from your home.

For example, say you need £50,000 and want to release that value from your home. With equity release, you get the £50,000 and don’t need to pay it off or pay interest until you either pass on and your home is sold or you move into a long-term care facility and sell your home.

There is interest, but the interest you owe is simply added to your loan amount and paid off during the property sale. Some lenders let you pay off the interest as you go, but the main amount (that £50,000, in our example) gets paid back during your house sale.

How much equity can you release?

The amount of equity you can release depends on your:

• Age and overall health of the youngest applicant
• Property value
• Property type (listed, new build, etc)
• Outstanding mortgage

What’s the difference between equity release and a lifetime mortgage?

You may hear about lifetime mortgages and might be wondering if they differ from equity release. So, what is a lifetime mortgage equity release? Is a lifetime mortgage the same as equity release? Let’s get into it.

A lifetime mortgage is mostly a colloquial term used to refer to equity release mortgages. This is because equity release is usually repaid during probate. Unlike traditional mortgages, equity release mortgages are designed to last either your lifetime or until you move into a private care facility.

How do equity release mortgages work?

So, how does an equity release mortgage work? You essentially take a loan that’s backed against the value of your home. This means that your home’s value, outstanding debts (your mortgage) and also your life expectancy will all impact how much you can take out and your lending options.

Can you get equity release on a mortgaged property?

One of the big questions many will ask is, “Can I get equity release if I have a mortgage?” The good news is that the answer is yes, but how much depends on your outstanding mortgage.

If you’ve mostly paid off your mortgage, you’ll be able to release more equity than someone with a large sum left to pay off. The best way to get concrete insight and advice is to get in touch with an independent mortgage broker who can help you understand your options.

Ways to Get Equity From Your Property

There are three ways to get equity from your property with equity release.

Lump Sum

The most common type of equity release mortgage is a lump sum type. This means that you take out a specific amount and get it as a lump sum. This money can then be used for anything you like. You can use it to fund your retirement, go on a big trip, or even give your child or grandchild a deposit for their home.

In this example, say you want to give your grandchild £50,000 for their own deposit. You will then take out an equity release, and only pay the interest on that amount until you pass on or are moved to a permanent care facility.

Drawdown Facility

A drawdown facility is a specific type of release arrangement where you can access funds whenever you need them, up until your pre-agreed limit. This helps you save on interest overall.

For example, say you need £10,000 now to pay off debts. You also need to make critical repairs to your home over the next few years. With a drawdown approach, you can reserve an extra £30,000.

Since you pay interest on what you take out, this helps you save. For example, if you took out the £40,000 all at once, with a 5% interest, you would pay £2000 in interest per year. By waiting to take out the extra £30,000, you limit how much interest there is to pay. You will only start paying interest on equity once it’s been released, not if it’s been reserved.

Home Reversion

The home reversion scheme lets you sell a percentage or all of your property outright. You then continue to live in your property as a tenant. You can receive the money as a cash sum or as an income. When your home is eventually sold, the reversion company is the one who receives either a portion of the proceeds (if you sold only a percentage of your property) or the whole amount.