How Does Equity Release Work?

Equity release is a way to turn any equity in your home into a cash lump sum available for you to spend. How you do this depends on your needs and your property.

Refinancing your home can feel like a very daunting prospect, but for many people it has had lifechanging effects and enabled them to make other financial decisions.

People release equity in their home for many different reasons, from moving to a new home, helping children onto the property ladder, clearing other debts, paying off an existing mortgage, or a combination of other needs. So, how does equity release work?

There are two different types of equity release:

Lifetime mortgages – a specific mortgage product taken out against the value of your home. The loan and its interest is normally repaid after death or if you move into long-term care. You will also retain 100% ownership of your property and, providing you follow the terms and conditions, will not face repossession.
Home reversion plan – a provider purchases all or part of your home from you, while you can remain in the house as a tenant for the rest of your life. You will typically lose ownership of your home, but some providers may allow you to retain some interest.

At Derbyshire Equity Release, we specialise in lifetime mortgages but believe it’s important for you to know the difference between these two types of equity release. As we are qualified and have experience in equity release mortgages and standard and residential mortgages, we will help establish if equity release is the right path for you to take or if there are other options available. We will make sure, whatever decision you make, that you understand all of the short-term and long-term costs, risks and benefits involved.

Lifetime Mortgages

If equity release sounds like the perfect solution for your situation, why not take a look at our page on lifetime mortgages to learn more about what the process may involve.

More about lifetime mortgages

Have More Questions?

Looking for a little more information before taking the next step? Our FAQs page contains all the most common questions about equity release and our insightful answers.

View our complete FAQs

Talk to Us

If you think equity release is the right option for you and would like to talk to us more about lifetime mortgages, please get in touch with one of our friendly advisors.

Get in touch

Our Customer
Stories

Bob and Anne did not wish to sell their home and downsize - they loved where they lived due to its proximity to the shops, their family and had lovely neighbours. However, they wanted to buy a static caravan for their holidays and couldn’t afford the monthly payments available through finance offered from the caravan dealer. They used a lifetime mortgage to raise the money needed to buy their caravan which both they and their children could use for very many years to come.
Bob & Anne

Tony and Barbara’s two children both lived in rental properties and as a result, did not have the money needed each month to save up a deposit so they could buy their own homes. They wanted to give their children an early inheritance and help them onto the property ladder. A lifetime mortgage enabled them to help their children become property owners.
Tony & Barbara

Joe and Mary had an interest only mortgage and their bank was asking for the balance to be repaid which they had no way to do. They also wanted to complete some improvements like new windows and a downstairs wet room to make their home comfortable and safe. They used a lifetime mortgage to clear the mortgage and raise the extra funds they needed.
Joe & Mary

Key Facts

We know that the equity release process involves a lot to be carefully considered. These are the key things we think you need to know before you apply for an equity release mortgage.

1. What is Equity Release?

Equity release is the process of refinancing your home in order to unlock a cash lump sum against the value of your property. You don’t need to have fully paid off your mortgage to do this: your ‘equity’ is the value of your property minus any mortgage or loan secured against it. If you have a mortgage or loan secured against your property, a lifetime mortgage can be used to pay this off.

2. Equity Release Criteria

All mortgages have certain criteria and terms & conditions that need to be met. For equity release mortgages, the main additional criteria is your age. Lifetime mortgages are typically only available to those aged 55+, and for Home Reversion Plans this is 65+. If you are under 55, we may still be able to offer some guidance on how a mortgage can improve your financial situation – just call us any time.

3. Costs

The main costs involved in any mortgage are the repayments and the interest rates. Most lifetime mortgage plans will not commit you to making a monthly payment, and while interest rates are higher than standard mortgages, many people are surprised by how low they still are. As for our costs, we have a fixed fee for our lifetime mortgage advice, so you won’t be met with a surprise bill at the end of the process.

4. Home Ownership

The route you take to release equity in your home can dramatically alter your home ownership status. A home reversion plan will mean you lose part or all of your percentage share in your home. At Derbyshire Equity Release we only broker lifetime mortgages, which still leave you with 100% ownership of your home until you die or move into long-term care.

Equity Release Help!

Do you have some questions about equity release? You might find the answer here or on our Lifetime Mortgage page, but if you’re ready for some more personalised advice, just call us.

1. What is equity release?

Equity release is a way to unlock the ‘equity’ or value in your property as a cash lump sum that can be spent on other things. People release equity in their home for a huge variety of reasons, from moving to a new home or helping family onto the property ladder, to clearing other debts or making an investment elsewhere.
2. What is equity?

Your ‘equity’ is the value of your property minus any mortgage or loan secured against it.
3. How does equity release work?

There are two types of equity release: 1) Lifetime Mortgage and; 2) Home Reversion Plan. A lifetime mortgage will allow you to borrow a proportion of your home’s value with a fixed or capped interest rate. In a home reversion plan, a provider will purchase a percentage share of your home at below market value, and you can continue to live rent-free as a tenant until you die. When the property is sold, the proceeds are split based on the percentage share you and the lender each own.
4. Can I apply for an equity release mortgage?

You can apply for a lifetime mortgage if you are aged 55+. For a home reversion plan you will need to be 65+. There may be other criteria or terms and conditions that individual providers impose – for more personalised advice or to find the best lifetime mortgage deal for your situation, please get in touch.
5. Do I have any other options to equity release?

There are many ways you can use your property and mortgage to either release capital or improve your monthly mortgage repayments. You could look at downsizing your home, or see if there is a remortgage option that would put you in a better financial position. As we are fully qualified in standard and residential mortgages, as well as lifetime mortgages, we will be able to help establish which mortgage type is best suited to you and your situation – just get in touch.
6. What are the risks of equity release?

The amount you are able to leave your loved ones when you die will be affected, and some of your state benefits may also be affected. We recommend speaking with a Citizen’s Advice Bureau who can understand how much money you want to take, what for and when, and can then explain the impact this may have on any benefits you are currently receiving.
7. What are the benefits of equity release?

Equity release first and foremost allows you to take a cash lump sum that can be spent or invested somewhere else in your life. This could be to purchase another home, clear debt, enhance your retirement, financially assist family or for a combination of other reasons. If you take a lifetime mortgage, you will also continue to own 100% of your home so you can still benefit from any future increase in value. Lifetime mortgage interest rates are also typically fixed for life.
8. How do I make repayments?

Home reversion plans don’t involve any repayments to that provider, but if property prices rise substantially you and your beneficiaries may lose out significantly on the value in your home.

Lifetime mortgage plans will typically not commit you to make a monthly repayment, but offer flexibility in making repayments should you wish to. We can work with you and your situation to find the plan best suited to you that will allow you to take the cash you need and make the repayments you want while avoiding any penalties.

Is equity release the right path for you?

If you think an equity release lifetime mortgage may be the right option for you and your situation, please get in touch. We’ll be there to guide you every step of the way.