As you get older, you may find that much of your wealth is tied up in your home. If you need extra money for retirement, home improvements, helping family, or just to enjoy life a little more, equity release could be an option to unlock the value from your property without having to move out.

But what exactly is equity release, and how does it work?

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Understanding Equity Release

Equity release is a way for homeowners — typically aged 55 or older — to access some of the money (or ‘equity’) that’s built up in their property, without needing to sell it.

You continue to live in your home, but you receive either a lump sum, regular payments, or a combination of both.
The money released is tax-free and can be used for any purpose, like topping up retirement income, clearing debts, or funding travel and leisure.

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How Does Equity Release Work?

When you take out an equity release plan, you’re essentially borrowing against the value of your home. The loan is usually repaid:

• When you die, or
• When you move into long-term care,
  at which point your home is typically sold and the proceeds are used to repay the loan (plus any interest).

There are two main types of equity release products:

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1. Lifetime Mortgage

• This is the most common form of equity release.
• You borrow a portion of your home’s value, but you still own your property.
• Interest is charged on the loan amount, and it can either be paid monthly or added to the total loan (this is called ‘rolled up’ interest).
• The full amount (loan + interest) is repaid when the house is eventually sold.

Key features:

• You can usually choose between taking a lump sum or drawing down smaller amounts as needed.
• Some plans offer a “no negative equity guarantee”, meaning you’ll never owe more than the value of your home.

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2. Home Reversion Plan

• With a home reversion plan, you sell all or part of your property to a provider.
• In return, you get a tax-free lump sum or regular payments, and you retain the right to live in the property for the rest of your life (rent-free).
• However, you only receive a percentage of your home’s market value — often significantly lower — because the provider won’t get their money back until later.

Key features:

• You know exactly what portion of your home you’ve given up.
• When the property is sold, the proceeds are divided based on the percentage you still own.

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Who Can Apply for Equity Release?

Equity release is generally available if you:

• Are aged 55 or over (some providers set higher age limits for home reversion plans)
• Own your home outright, or have only a small remaining mortgage
• Live in a property that meets the provider’s requirements (e.g., in reasonable condition, of standard construction)

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Pros and Cons of Equity Release

Pros:

• Access to tax-free cash.
• Remain in your home for life.
• Flexible options: lump sum, regular income, or drawdown.
• “No negative equity” guarantees protect your estate.

Cons:

• Can reduce the value of your estate (less inheritance for your family).
• Compound interest can make the loan grow quickly if payments are not made.
• May affect eligibility for means-tested benefits.
• Early repayment charges may apply if you pay off early.

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Is Equity Release Right for You?

Equity release can be a helpful financial tool, but it’s not right for everyone. It’s important to:

• Consider other options first (downsizing, borrowing from family, traditional loans).
• Get advice from a qualified equity release adviser.
• Understand the long-term impact on your finances and your family’s inheritance.

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Final Thoughts

Equity release offers a way to enjoy the value tied up in your home without having to sell it.
However, because it can significantly impact your financial future, getting expert advice and understanding all your options is essential before making a decision.

If you’re thinking about equity release, speaking to an experienced adviser can help you weigh the pros and cons and find the right solution for your needs.