How to Release Equity from Your Home?

Congratulations! The value of your home has gone up over the years you’ve been there, and you’d like to release the equity. The property is yours – and so are the profits you make simply by owning it and looking after it. If you’re researching how to release equity from a house, this guide is for you. We’ll reveal everything about home equity release, exploring questions like how much equity can I release from my home, and showing you how releasing equity from your home works. If you’ve ever asked yourself ‘can I release equity from my home to buy another’, you’ll find the answers here. Read on to discover the best way to release equity from your home, making the most of one of the biggest benefits of buying your own place. 


What is Equity Release?

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First, what is equity release? Equity is simply the positive difference between the value of a property and the amount you owe, and equity release means liquidating the profit for your own use. Here’s how it works: 

  • Current property value: £250,000
  • Remaining capital owed: £50,000
  • Equity: £250,000 minus £50,000 = £200,000


Releasing equity from your home allows you to access the money you’ve invested into your home. Your lender will have their own set of rules but there’s usually a lower age limit of 55. Equity release lets homeowners aged 55 and more free up tax-free cash locked away in their homes. The amount you can release depends on your age and the value of the property. There are various equity release products on the market, some of which involve claiming your money as a lump sum and others in a series of smaller lump sums.


Why would you want to release equity? You might want to clear your debts before you retire, or help family members buy their first place. Maybe home improvements are on the cards, or you want a brand new car. You can even use the cash to take the holiday of a lifetime. If you’re asking yourself can I release equity from my home to buy another, it’s a yes. Releasing equity, or remortgaging to release equity or raise capital, is one way to get the funds you need to buy a second property.    


How Does Equity Release Work?


Equity release works by lending money against the value of your house. You’re basically borrowing money against the value of the property, and there are two main ways to do it. Which of these is the best way to release equity from your home?


A Lifetime Mortgage lets you release some of your home’s value to a pre-set limit, and you remain the homeowner. The cash you get is totally tax-free and you can use it any way you want. You simply pay back the loan when you, or the current owner named on the deeds, dies or has to go into permanent residential care. 


Home reversion means selling a share of your property in return for a lump sum. You know exactly what percentage of your home you’ve sold to the lender, and you stay in your home. These plans can have consequences, so be aware of all the ins and outs. When your property finally sells, the money is divided up according to the proportion owned by you and the lender. 


Neither of these options is available to under-55s but if you’ve gathered enough equity in your home you might be able to get at the equity through your existing mortgage, simply borrowing more against it. If you want to know what’s available in your case, ask your lender. 


Bear in mind there can be some costs involved in arranging equity release, and it isn’t fast. You’re usually looking at 6 to 8 weeks. 


Important Equity Release Considerations

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There are some crucial things to bear in mind before you decide to go ahead, since equity release may not be the best option for some people. It can be more expensive than a regular mortgage, for a start. A lifetime mortgage usually comes with a higher interest rate than normal, and if the interest is rolled up your debt can grow worryingly fast. Lifetime mortgages don’t have a fixed term either, no date by which you’ll have to repay your loan.


Home reversion plans don’t take the true market value of properties into account, compared to selling direct on the market the usual way, because you’re allowed to live in the property for the rest of your life, something you can’t do if you simply sell on the open market.


Releasing equity from your home means you might not be able to rely on the property for money to help fund retirement or long-term care. And while you can move house and take your lifetime mortgage with you, if you want to downsize later you might not have enough equity in your home, leaving you needing to repay some of the mortgage. It’s also wise to remember the money you get through home equity release can impact your eligibility for state benefits.


Equity release is perfect for some, not such a good idea for others. It’s down to your individual circumstances. There might be an easier, cheaper or less risky way to get where you want to be.  


Whatever your situation, your best bet is to talk to a good financial advisor about the choices around questions like how much equity can I release from my home, how to do it, what it’ll cost, and what the up-sides and disadvantages are in your unique case.