How to Release Equity in Property

If the value of your home is greater than the mortgage and other charges you may have on it, then you have equity in your property and you may be able to release that equity to spend or invest. This finance-raising method is generally available to those who are in their mid-fifties or older and who have paid off all or most of their mortgage. By releasing the equity in your home you can turn that 'excess' value into money which you can use, without having to move out of your home.

There are currently two ways to do this. You either take out a mortgage on your home, or you sell all or part of your home. Or you can do a combination of both. If you feel this way of raising money from your home is of interest then you can review the costs and offers from different lenders and compare them with the offer from your existing mortgage lender (if your mortgage has not been fully paid off). The FSA generally recommends that people who want to release the equity in their homes seek professional advice from an FSA-authorised adviser before taking this course of action.

The first type of equity release scheme is a 'lifetime mortgage' where you continue to own your own home but it is used as security for a loan. You would live in your home until you die or move out and the mortgage should be paid off with the sale of your home. There are several variants of the lifetime mortgage: home income plan; roll-up mortgage, drawdown mortgage, interest-only mortgage, fixed repayment mortgage, shared appreciation mortgage. Your professional financial adviser can take you through the ones most suitable for you, explaining the advantages, disadvantages and risks of each scheme and how they would affect not only you, but your beneficiaries.

The second type of equity release scheme is 'home reversion'. With this scheme you would sell up to 100 percent of your home for an agreed amount and your agreement or lease with the buyer should give you the right to stay in your home until you die or move to a care home. This means that you will continue to own only the fraction of your home which you have not sold, or, if you have sold 100 percent then you will no longer own your home.

The amount of money you get depends on your circumstances (in particular your age), the valuation of your home and whether or not you will pay any rent. In general, the older you are and the higher the valuation of your home the more money you will get. If you have kept a part of your home then you or your beneficiaries would benefit from any increase in value of your part of the property when it is sold. People who decide on home reversions, usually seek independent valuations and, as with all important financial decisions, professional advice before making their decisions.

As with standard mortgages and loans, there are charges involved when you want to release equity in your home. These charges may include valuations, legal fees, completion or arrangement costs and insurance costs. If you decide to end the 'lifetime mortgage' there will usually be charges. You cannot end a 'home reversion' because you have sold all or part of your home.