How to release equity from your home
ONE of the benefits of being a homeowner aged 55 and over is that you’ve likely dedicated years to paying off your mortgage and building equity in your property.
If you’re looking to supplement your finances, whether that’s for a holiday, home improvements or simply making life more comfortable for the future, discover how to release equity from your home and make the most of your accumulated wealth.
What is equity?
Your home’s equity is the value of ownership that you have in your property.
It’s the difference between the market value of your home and the amount you still owe on your mortgage or any secured loans.
For example, if your house is worth £300,000 and you have £50,000 left on your mortgage, you have £250,000 in equity.
Home equity can increase over time as you make payments towards your mortgage.
When you’ve fully repaid your mortgage or any secured loans, your equity is equal to the value of your house.
If you’ve owned your home for a number of years, the value of your property could have increased a substantial amount.
This means you might have more equity in your property than you expected.
In fact, average property prices in the UK have increased by almost 50% in the last 10 years, according to Nationwide House Price data.
So, if you bought your house in 2014 for £178,000, your house could now be worth £259,880.
How can I release equity from my house?
There are a few options for releasing equity in your home: equity release, remortgaging, a home equity loan or downsizing.
These options allow you to use the value in your home to access funds to help you achieve your goals or supplement your future finances.
Calculate how much you could access with equity release
Release equity by equity release
Each year, thousands of homeowners decide whether equity release is right for them.
You can unlock from a minimum of £10,000 up to 53% of the value of your property depending on factors such as the age of the youngest homeowner and how much your home is worth.
The most popular type of plan is called a lifetime mortgage, and this allows you to maintain 100% home ownership.
Once you’ve repaid any existing mortgage, which is a condition of equity release, the money is yours to enjoy spending.
You’re also not required to make any regular repayments if you do not wish to, meaning you can reduce your committed monthly expenses compared to if you had a regular mortgage.
Any money released, plus accrued interest is repaid upon death, or moving into long-term care.
Calculate how much you could access
Release equity by remortgaging
Remortgaging may allow you to refinance your existing mortgage with a new one that is larger than your current outstanding balance.
The additional amount borrowed is based on the equity you have built up in your home.
Essentially, you’re borrowing against the value of your property beyond what you still owe on your current mortgage.
With a remortgage, you’re usually required to make regular repayments, so you are unable to reduce your committed monthly expenses.
However, this can prevent your debt from growing over time. Your property may be repossessed if you do not keep up repayments on your mortgage.
Release equity with a secured loan
A home equity loan, also known as a second mortgage, is a type of secured loan that allows homeowners to borrow against the equity in their home.
The loan is typically repaid in fixed monthly instalments over a set term.
Secured loans against your house offer several benefits, including potentially lower interest rates compared to unsecured loans because the lender has the security of your property.
Additionally, secured loans often provide higher borrowing limits and longer repayment terms, making them suitable for large expenses or debt consolidation.
While both equity release and home equity loans involve accessing the equity in your home, they are different in terms of eligibility criteria, repayment structures, and potential impacts on inheritance and homeownership.
An expert will be able to help you decide which could be right for you.
Release equity by downsizing
If you’re willing to move to a smaller or less expensive property, selling your current home can release equity.
After paying off your existing mortgage to free up monthly committed expenses, you can use the remaining proceeds as you see fit.
This option not only unlocks equity but may also reduce ongoing expenses associated with homeownership.
What should I consider before releasing equity?
It’s essential to carefully consider the features and impact of each option before deciding which is most suitable for your needs.
At Age Partnership, a specialist advisor can talk you through the different options to help you find out which option, if any, is best for you.
If you decide equity release is the best option for you, advice is required before proceeding.
Equity release may involve a home reversion plan or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care.
Initial advice is provided for free and without obligation. Only if your case IS completeD would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Registered address, 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB.