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What is Equity Release?

In general, releasing equity is the process of taking out some of the value tied up in your property. The term “Equity Release” refers specifically to methods which are only available to people over a certain age, often releasing money to help fund their retirement. Actually, the money can be used for a wide variety of things and a person does not need to be retired in order to make use of equity release.

There are two main types of equity release. The most popular is called a Lifetime Mortgage where the borrower retains ownership of their home and still benefits from future increases in value. This is different from a normal mortgage because there is no specific end date and the homeowner has a choice about whether they want to pay off any of the capital or interest. The other type is known as Home Reversion, and this is where ownership is passed to the financial provider but the applicant receives a lease allowing them to live in the property for their lifetime.

The amount that can be withdrawn is dependent on age and the equity built up in a person’s property. In later life, equity will often be the same as the market value of the property but any outstanding mortgages reduce the equity available. For example, a house worth £300,000 with an outstanding mortgage of £40,000, will have equity of £260,000.

The amount of equity that can be released increases as the applicant gets older. Each equity release lender has their own set of rules around this. Although you will be able to find calculators giving an indication of borrowing, it is worth getting personal advice about your own situation. Remember also that existing mortgages will have to be cleared at the same time.