Should you equity-release?

Equity release is a way to unlock the value of your home and turn it into cash. You can do this via policies which let you access – or 'release' – the equity you've built up in your home over the years.

To apply you'll need to be aged 55 or older. However, you don't need to have paid off your mortgage to take part.

As a rule, you can either take the money you release in one lump sum, in smaller amounts over time (known as 'drawdown'), or a combination of both. In 2024, homeowners used equity release to turn £2.3 billion of property wealth into cash.

There are three potential ways of freeing up cash:

1. Lifetime mortgages (if you're aged 55+)

This is the most popular form of equity release. Here you borrow some of your home's value at a fixed or capped interest rate (typically starting from 6%). 

You can either take the money all at once in a lump sum, in smaller chunks as and when you need it (known as drawdown), or a combination of both. With drawdown, interest is only charged on the cash you've actually taken, not on the money you're yet to draw down.

Most lifetime mortgages allow you to make repayments – be that repayment of the capital or just the interest – meaning you can reduce the overall cost, though typically repayments are limited to 10% of the loan balance each year. If you choose not to make repayments then the interest will compound rapidly as the amount you owe is increasing all the time.

A lifetime mortgage is different from a standard mortgage. If you think a standard mortgage is more appropriate for you, see our Cheap mortgage finding guide for tips.

2. Home reversion plans (if you're aged 60+)

With a home reversion plan a provider pays you a tax-free lump sum for a portion of your home (this will be at below market value). You can continue to live in your home, rent-free, until you die. When your home is sold, the proceeds are split based on the percentage you and the lender own – so if your home has risen in value, so does the lender's return.

Let's say you exchange a 40% share of your £400,000 home for a lump sum of £80,000. This is significantly lower than the £160,000 a 40% share is actually worth – mainly because the lender will have to wait many years to get its money back. After you die, if your home sells for £500,000 then the lender would be entitled to £200,000, equivalent to a 40% share.

So home reversion plans can work out better if property prices stay flatter, worse if they rise.

3. Retirement interest-only mortgages (if you're aged 55+)

While technically a retirement interest-only mortgage (RIO) isn't a form of equity release, it's similar in that it gives you a lump sum of cash secured against the value of your home. Provided you've a stable monthly income, it can be a good way of releasing equity in your home.

RIOs are generally only available to over-55s, though you don't need to be mortgage-free to apply. Like a lifetime mortgage, you'll be charged interest on what you borrow. But unlike a lifetime mortgage – where repaying the interest is normally optional – with a RIO you MUST pay off the interest each month (you can normally make overpayments too).

Provided you can afford the repayments, a RIO should work out cheaper than a lifetime mortgage as you're repaying the interest each month – so interest is only ever charged on the original loan. Whereas with a lifetime mortgage, the interest compounds each month (unless you opt to pay it off each month, in which case a RIO won't necessarily be cheaper).

Because you have to make repayments, you'll need to pass an affordability test. The amount you can borrow will be dependent on your age, property type and what kind of RIO you're applying for. Borrowing is normally capped at around 60% loan-to-value.

While RIOs can come with the option to port (which allows you to take your mortgage with you to another property), they don't normally have downsizing protection (unlike many lifetime mortgages). So you're not always protected from early repayment charges if the property you're moving to isn't acceptable to the lender.

RIOs can used for similar purposes to equity release, including repaying a mortgage.

What are my options if I'm under 55?

Equity release and RIOs are only available to those aged 55 and over. If you're close to 55, you may feel like you're in a position where you can wait until then.

However, if you're a homeowner who's under 55 and in more pressing need, it's worth speaking to a mortgage broker about the possibility of remortgaging. Or, if your situation is particularly complicated, contact a financial adviser.

Remortgaging is a good way of lowering what you pay towards your mortgage each month and in some cases you might be able to raise further cash against your property. Even if you're an older homeowner but not interested in equity release, don't automatically assume you wouldn't qualify for a mortgage, as several lenders have raised their upper age limits.

Quick question:

Wondering whether equity release is a good idea? It certainly isn't something to be taken on lightly, so first consider whether downsizing is a preferable alternative. 

If you can sell up, move to a smaller home and live off the proceeds, great. You may find a property more suitable as you age – fewer stairs, or maybe none at all. Our Selling your home guide has full information on what's involved when selling a property. 

If downsizing is right for you, DON'T PUT IT OFF.

People in their 60s often say to me: "I'll do it in a few years."

A few years later it's: "Not yet."

And after that it's: "We're now too old to leave."

So if downsizing is right for you, consider it sooner. Having said that, if you've lived in an area for many years and have friends nearby, don't underestimate the personal and social impact of moving away if you can only afford to downsize out of the area.

On top of this, the financial cost of moving can be high, with agent fees and removal costs to factor in – you'll need money to finance this initially. Have a read of our Moving home checklist guide for more information on what moving property will likely involve.

If you decide downsizing isn't the right option, equity release might be a suitable alternative.

Interest rates on lifetime mortgages currently start from 6%, with the more costly deals nearer to 8%. This is significantly more expensive than mainstream mortgages. 

When weighing up which equity release product would suit you best, remember that the expensive price-tag your estate would have to repay comes if you've chosen not to make monthly repayments to reduce the debt, so the interest compounds and compounds.

Borrow £20,000 aged 60 at 6% and the amount you owe doubles roughly every 12 years. So live until 72 and you owe around £40,000, live until 84 and you owe £80,000.

These real-life examples show how the cost of equity release can really spiral:

The Equity Release Council (ERC) works to ensure lenders and advisers provide the highest possible standards to borrowers. Lenders who are members of the ERC – which the overwhelming majority are – carry its TrustMark (seen on the right). Their equity release deals:

- Have a 'no negative equity guarantee'. So there's a limit to what you'll owe.
- Charge a fixed (or capped) rate of interest. So what you're charged shouldn't change.
- Allow you to make repayments. Which means you can reduce the overall cost.
- Are portable. So you might be able to move home and take the deal with you.

For these reasons, it's best to use a lender that's an ERC member.

If it is an ERC member, you'll also need to arrange for legal advice from a solicitor, whose job is to ensure you understand the ins, outs and implications of equity release. One of these meetings with your solicitor will have to be face-to-face. These are ERC rules.

As well as lenders, both solicitors and financial advisers can be members of the ERC too. To find one that's a member of the ERC, see the relevant section of its website:

• Financial advisers

• Lenders

• Solicitors

4. Involve your loved ones in the process

As an equity release plan doesn't need repaying until you die or move in to long-term care, it's likely your loved ones will have to sort out repaying the line. Therefore you should consider involving them during the application – or at least let them know your plans.

Occasionally we hear from grieving readers who have been shocked at how much it can cost to repay a loved one's equity release plan (and sometimes shocked to know they had one in the first place). By involving family, there's less chance they'll be taken by surprise.

5. Be aware equity release can affect your benefits

Having cash rather than a property can affect the benefits you're entitled to, like Pension Credit, Universal Credit etc. So if you're entitled to those, check the impact of equity releasing first. If you're unsure, ask an equity release adviser to explore this for you.