Equity Release Explained:Full Guide For 2023

Get your free calculation...

equity release explained image of a house and cash growing

Updated October 2023- Author Paul Murphy 

Whether you are looking to raise equity release as a lump sum or a drawdown lifetime mortgage, Later Life Finance have access to the best equity release companies and schemes available and provide expert, independent advice on all your options. 

We review the most popular type of plan, the lifetime mortgage, and explain how flexible these modern schemes are for homeowners considering releasing equity from your home. 

If you are considering releasing equity you may be interested in the 4 little known truths about equity release, the myths and pitfalls to avoid

When you are considering how equity release works and whether it’s the best choice for you, we provide advice and guidance on all your options. 

Lifetime Mortgages

Lifetime Mortgages (also known as Equity Release) are becoming increasing popular as a way to release cash from the home.  When considering what the requirements are for lifetime mortgages, and the age criteria, Later Life Finance are experts in sourcing the best plan for your needs. 

Nearly 50,000 homeowners took out new plans, up 20% on 2021, with all new plans since 28 March 2022 guaranteeing customers the right to make voluntary penalty-free partial repayments to reduce interest costs*

How much equity you can release from your home is based on a number of factors including your age and home value. 

*equity release council 2022 report.

Help Family

Dream Holiday

Cash Lump Sum

Pay Off your Mortgage

Drawdown Lifetime Mortgages

A drawdown lifetime mortgage is popular where the money is not required in a full lump sum from the outset. For example, you can take smaller amounts as and when required. This also has the benefit of reducing the interest effect as you are only charged interest on the funds borrowed. The reserve facility is charged at the interest rate applied at the time of further borrowing. There are typically no fees to access the reserve facility.

Lump Sum Lifetime Mortgages

A lump sum plan will incur interest on the full sum from the outset, whereas a drawdown plan only incurs interest on each lump sum as they are drawn, helping to reduce the interest costs, which can help reduce the impact of interest on your estate when compared with a one off lump sum plan. 

Although compound interest applies to lifetime mortgages, lenders allow voluntary repayments to be made to avoid interest compounding. 

Later Life Finance have over 15 years Mortgage expertise and are experts in the Later Life mortgage industry. 

We provide an independent Later Life Mortgage comparison service to compare all your Mortgage options. 

We work on a whole of market, independent basis and consider all available mortgage providers, interest rates and schemes to identify the best solution for our valued clients. 

Whether you wish to extend your mortgage term, gift cash to loved ones or raise money to live the retirement you deserve, the Later Life Experts will help you understand all your options and can even arrange the plans for you.

At Later Life Finance our advisers have years of experience in helping homeowners successfully release Equity from their homes. We offer a FREE NO OBLIGATION initial telephone appointment with a qualified Equity Release adviser, where you can discuss your circumstances and find out if an Equity Release Mortgage is right for you.

Book your free appointment today and use our free equity release calculator


How Does Equity Release Work FAQS 2023

The minimum age for taking out an equity release lifetime mortgage is 55. However, as people are living longer, starting a lifetime mortgage earlier may result in higher costs, especially if you choose not to pay interest during the loan term.
Equity release may be a good idea for homeowners over 55 who would like to raise tax-free cash from their property. Equity release enables you to fund various needs, such as making improvements to your home, covering care expenses, assisting loved ones with a living inheritance, or settling outstanding debts.
The yearly borrowing amount in equity release typically ranges from 10% to 40%, depending on the specific plan. Most plans offer flexibility in interest payments, allowing you to choose between paying no interest, some interest, or all of the interest accrued. Additionally, you have the option to make payments above the interest charged, which can help reduce the overall capital owed and result in savings upon maturity of the plan
Equity release plans offer the opportunity to access a lump sum of cash or receive regular income. The "catch" is that the cash released will eventually need to be repaid upon your passing or when you move to long-term care. In the case of a Lifetime Mortgage, you will be responsible for repaying both the borrowed capital and the accumulated loan interest.
When it comes to equity release, the specific repayment amount is influenced by various factors, including the type of plan and how long it runs for. Compound interest plays a significant role in the total repayment, as it accumulates on the initial loan amount and any previously accrued interest. Unlike traditional loans, equity release plans usually don't require regular repayments. Instead, the outstanding loan, including the accumulated interest, is typically repaid when you pass away or move into long-term care, using the proceeds from selling your property. Consider the long-term implications of compound interest, and seek advice from our financial professionals to make an informed decision and access detailed projections.
Disadvantages of equity release involve reduced payouts in home reversion schemes, as companies typically offer less than the full market value for their share of your property. With lifetime mortgages, a drawback is the impact of compound interest, potentially resulting in reduced inheritance for your beneficiaries. However, this drawback can be mitigated by making voluntary repayments to the mortgage to reduce or eliminate the effect of compound interest.
Yes, it is possible to sell your house if you have equity release. Equity release products, including lifetime mortgages, offer the flexibility to be repaid or ported to another property when you sell your home. However, it's important to consider that some equity release plans may have early exit fees or penalties associated with repaying the loan before a certain period.
The main difference between equity release and remortgaging is that equity release does not involve fixed monthly repayments, whereas remortgaging does. This characteristic makes equity release a preferable option for older homeowners looking for flexibility in later life, where fixed monthly mortgage payments are less favourable.
Modern equity release is safe and regulated by the Financial Conduct Authority (FCA). Strict regulation, rules and safeguards ensure homeowners are protected and you are guaranteed to never to owe more than the value of your home.
Pros of equity release Tax free money – the cash you release is free from tax and yours to use as you wish. However, if you have an existing mortgage in place, this needs to be repaid with the money you release from your home. Optional monthly repayments – Compared with a typical mortgage this offers much more flexibility. You still own your home - With a lifetime mortgage you continue to own your home. You can remain living in your home until the last surviving homeowner dies or goes into care. FCA regulated – Modern equity release is safe and fully regulated by the Financial Conduct Authority (FCA) with industry codes of conduct overseen by the Equity Release Council (ERC). No negative equity guarantee – plans provided by members of the Equity Release Council guarantee that you will never repay more than the value of your home. Porting - You have the freedom to move home (port) as long as the new property is mortgageable Drawdown facilities – you can choose to release the cash in a lump sum or as and when you need it with access to a reserve facility on a drawdown lifetime mortgage. Voluntary repayments – plans provided by Equity Release Council members allow you to make voluntary repayments which can help reduce the overall cost of the loan.   Inheritance guarantee - you can guarantee an inheritance by protecting a percentage of the property value for your beneficiaries. Cons of equity release Compound interest as you pay interest on the loan and on the interest already accrued, the amount you owe grows at a faster rate. Impact on inheritance - The loan is repaid from the sale of your property and will reduce the inheritance you leave. Early repayment charges - Equity release plans include penalties for repaying the loan early. Affects Means Tested benefits – releasing equity could negatively impact on any means tested benefits Modern lifetime mortgages offer greater flexibility, such as voluntary repayments, downsizing protection and the option to protect a percentage of your property value or make interest repayments to a percentage of the amount released without incurring fees Access expert equity release advice with Later Life Finance.
According to the Money Saving Expert, "Releasing equity on your property needs to be done when you need the funds,” Martin Lewis said. “If you don't need the funds, don't do it.” Reviewing the alternative options including downsizing or using alternative funds is part of Later Life Finance's advice process to ensure you make the right decision for you.
The most common type of equity release is the lifetime mortgage. The interest charged is 'rolled up' and repaid when the property is sold. The plans also allow optional repayments to maintain control of the interest if you do not want the interest to accumulate. This gives you more control over your outgoings compared with a mainstream mortgage. The value of your home and your age determines how much money you can taken from your home with a lifetime mortgage. Most plans have an early repayment charge and some lenders offer downsizing protection for flexibility if you wish to move home and repay the mortgage early. The mortgage lenders allow you to port the plan to a new home. Your financial adviser will discuss any impact on state benefits. There are brokers and providers, also known as lenders. The best equity release companies are members of the equity release council and regulated by the Financial Conduct Authority.
A lifetime mortgage is the most common method to release equity, as you retain homeownership (unlike a home reversion plan where you sell a proportion of the property). These consist of a lump sum or drawdown plan, which can help reduce the impact of interest charged on the loan. Depending on whether you require the maximum amount of equity release or not determines which type of plan is suitable. The mortgage is repaid when the last survivor passes away or goes into long term care. There is no fixed term based on your age.
Equity release schemes offer several features. With a lifetime mortgage the interest rate is typically fixed for life and a lump sum or drawdown reserve facility can be arranged. Monthly payments are optional and plans are not underwritten on affordability, making the equity release route an attractive option for repaying an existing mortgage and debts as long as the implications of securing previously unsecured lending against your home is understood.
Later life mortgages are for mortgages designed for the over 50s. Unlike a traditional mortgage, later life mortgages have a minimum youngest age of 50 and either have no fixed payments, or they can use retirement income as part of the application process to incorporate fixed monthly interest payments.
If you are considering whether to release money from your home accessing expert advice to understand each product available is important. A financial adviser who specialises in equity release plans is called an equity release adviser, or specialist who is a later life finance mortgage expert. You can access advice through Later Life Finance without any pressure or upfront costs. Contact 0800 2465228 to talk with a friendly expert who can explain all your options.
With equity release the market value of your property is determined by a chartered surveyor. The lender will arrange this if you decide to apply. The valuation process normally involves a visit to your home, and is part of the application process. This enables the value of your property to be confirmed and the amount of equity available to be calculated. If the valuation figure is higher or lower than expected this can affect the amount of equity available. The property value must reflect the market in your area and similar sized property values. A common misconception is valuers reduce the figure when applying to release equity, however this is not the case as the valuer must use comparable evidence, which means sold properties of a similar size. You are not selling your home with a lifetime mortgage; any future growth in the valuation figure will still benefit your home.  When considering how much equity you can release from your home, your property and your age determine the figures.
How much equity you can release is based on your age and property value, the lenders criteria and any other factors to consider such as property type or location can also influence the value of your home. The percentage of borrowing starts at around 20% of the value of your home at a youngest age of 55, and increases by 1% each year. The older you are the greater the level of borrowing available. Factors such as property type and health are also used as part of the overall figure available with to determine how much equity you can release.  Any outstanding mortgage must be repaid from any equity released.
Releasing equity from your home can be beneficial if you want to utilise the money tied up in your home. This can be a good idea if you have a mortgage to repay, or are struggling with debt, or if you want to boost your finances or gift funds to family members as an early inheritance, for example. Using your equity to improve or adapt your home in later life is also popular, if downsizing isn't preferable and you plan to stay in your home for the foreseeable future. Your adviser can guide you on suitability, alternatives and explain all the pros and cons. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
Due to compound interest, the value of your estate will reduce, whilst the amount you can pass on in inheritance via your estate will decrease. Entitlement to means tested state benefits may also be affected, it's important to discuss this with your adviser and check what you are entitled to. Early repayment charges can apply for repaying the plans before you pass away, so it's important to consider your longer term plans which your equity release adviser will discuss with you. Your adviser can guide you on suitability, alternatives and explain all the pros and cons. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
The main alternative to equity release is downsizing, or if any savings or assets can be used instead this is also important to consider when looking at all your options. Other alternatives to equity release are retirement interest only mortgages, conventional mortgages, and checking whether any means tested benefits or grants may be available to you. Your adviser can guide you on suitability, alternatives and whether it is the best time for you. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
Most equity release companies have a minimum age of 55. Some companies require a minimum age of 60. The best age to take equity release is based on your individual circumstances and when the time is right for you, considering all the options and alternatives. Your adviser can guide you on suitability, alternatives and whether it is the best time for you. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation.
Martin Lewis explains when looking for a lifetime mortgage solution, you should always try secure the most competitive interest rate, which is something Later Life Finance can guarantee as a whole of market, independent broker. Martin Lewis recommends anyone with an existing lifetime mortgage should check if they are eligible for a more competitive interest rate, and how much equity can you can release.
An equity release broker can provide advice and access to the range of plans available in the marketplace. Later Life Finance provide independent, expert advice on all your equity release options. Our advisers can guide you on suitability, alternatives and whether it is the best time for you. Contact Later Life Finance Limited on 0800 2465228 for expert equity release advice and guidance, without any pressure or obligation. Get in touch on 0800 2465228