Releasing equity from your home

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Homeowners who have successfully paid off their mortgage or who are living in a property that is valued as worth much more than they originally invested are sometimes able to release equity from their home.

This can provide a lump sum of money or monthly payment to be enjoyed immediately, rather than by waiting until the house is sold and the investment recouped.

Releasing equity is particularly popular among retired people who are comfortable in their own homes but want to be able to take advantage of rising property values. However, it is not an entirely risk-free way of enjoying extra money in your retirement years. Understand more about equity works and whether it is a viable option for you.

Understanding your home’s equity

Companies are willing to offer you a loan on the value of your house if they think there is a good chance that they will later be able to recoup the amount. Many of these schemes are only available to people who are between 55 and 70. It’s also typically easier to be accepted to one of these schemes if you are a freeholder. However, some companies will agree to give you a loan even if you don’t meet all of the criteria.

You will normally receive the loan as cash, either in a lump sum or as a monthly payment, and you will be allowed to live in your own home. To get back the loan, the lender will be able to sell the property after your death or if you move into a care home or similar. If you’re thinking about releasing equity, you should find out whether you’ll be able to move home if you decide you want to be closer to family or in a smaller property at a later date. Money.co.uk has a good guide to understanding equity and you’ll also find a good no nonsense article from The Guardian that explains how equity loans work.

Things you should think about before releasing equity

There are some other important issues that you should consider before you decide to release equity, including your life expectancy. As a general rule, people who are in their 60s and 70s are better off opting for monthly payments and if you are older you might not receive as much money, depending on the value of your home. It’s also worth bearing in mind that if you are living with a younger relative or friend, they will have to find alternative accommodation after your death. There’s also the question of your estate to think about, as you will not be able to leave your home or any money earned from it to your family. The Money Advice Service offers some guidance to leaving money and goods in your will.

It’s also a very good idea to think about your eligibility for means-tested benefits and pension credits, as receiving equity from your home may mean that you’re not able to then receive these payments. For some professional advice about releasing equity, you might want to consult the information available from Unbiased.co.uk.

Disclaimer

The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.

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