Equity release explained: options, costs and risks

1. Compare the two main types

A lifetime mortgage is a loan secured against the home: you keep ownership and it is usually repaid when the home is sold after death or a move into long-term care. A home reversion plan sells all or part of the home, usually for less than current market value, while you retain a right to live there under agreed terms. Compare ownership and repayment terms, not just the cash offered.

2. Understand how interest can compound

With a roll-up lifetime mortgage, interest that is not paid is added to the balance. Later interest is then calculated on the increased balance as well as the original loan. Imagine that interest is added to a balance at the end of one period: in the next period, the calculation starts from that larger total. This is why a debt can grow more quickly over time than a simple one-off charge. The illustration describes the mechanism only; it uses no product rate or forecast.

3. Ask about guarantees and contract conditions

The Equity Release Council is a standards body; its standards include safeguards such as a no-negative-equity guarantee on products that meet the relevant standard. That guarantee has terms and does not mean there is no cost: the estate may still receive much less after the secured amount and sale costs are dealt with. Ask what happens if you move, need care, want to repay early, change the property or add someone to the home. Tell family whom you want involved before signing. Early repayment charges can be significant, so request the conditions in writing.

4. Check regulation and obtain advice

Lifetime mortgages and home reversion plans are regulated financial products, and equity release is an advised sale. Use the Financial Conduct Authority register to check the adviser and firm are authorised for the relevant activity. Ask for advice that compares alternatives as well as products, explains fees and shows how the balance could change under different time periods. Before acting on equity release, get regulated financial advice and independent legal advice; residents in Scotland and Northern Ireland should use a solicitor familiar with the law and property process in that nation.

5. Check effects on benefits, tax and care funding

A cash lump sum can change entitlement to means-tested benefits or support if it remains in an account or is spent in a way that affects capital. Council Tax Reduction is administered under local schemes, so ask the council how a change in savings or income is treated. Care financial assessments have separate national rules; releasing equity does not guarantee that future care charges will fall. Explain how you expect to use the money and ask for the effect on benefits and care assessments to be checked before signing.

6. Compare practical alternatives first

Depending on the need, alternatives may include downsizing, a benefit check, a council repair loan or grant, a Disabled Facilities Grant, a retirement interest-only mortgage, or a deferred payment agreement for eligible care costs. Each has its own eligibility, costs and consequences. If the money is intended for care, ask the council about assessment and funding before borrowing. [[paying-for-care-with-your-home|Paying for care with your home]] explains property disregards and deferred payments; [[moving-home-or-downsizing|moving home or downsizing]] covers the practical and emotional trade-offs.

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