Releasing equity from your home

What is home equity? 

Home equity is the difference between the current market value of your home and the amount you still owe on your mortgage

For example, if your home is valued at £200,000 and you owe £120,000, your equity is £80,000.

Your equity can grow over time, as:

• You pay more off your mortgage.
• Your property's value increases.  

What is equity release? 

Equity release is a way of unlocking money from your home without having to sell it. It's usually available to homeowners aged 55 and over.

The money can be taken as:

• A lump sum
• A series of smaller payments
• A combination of both

The loan is typically repaid when you pass away or move into long-term care. 

What are the main types of equity release? 

There are 2 types of equity release products:

1. Lifetime mortgage

A lifetime mortgage is a loan secured against your home - you still own the property. You can choose to:

• Make monthly repayments.
• Let the interest add up (and be added to your loan).

The loan and interest are repaid when your home is sold after you pass away or move into long term care.  You can usually ringfence some of your property's value to leave as inheritance.  

2. Home reversion  

Home reversion is when you sell part or all of your home to a provider in exchange for a lump sum or regular payments. You can:

• Continue living in your home, rent free, for the rest of your life - but you must maintain and insure the property.
• Keep a share of the property for your loved ones.

When you die or move into long-term care, your home will be sold and the proceeds split according to the ownership shares. 

Reasons people choose to release equity 

Releasing equity is a personal choice. Common reasons include:  

• Paying for home improvements or repairs.  
• Clearing debts like loans or credit cards. 
• Gifting money to children or grandchildren (e.g. to help witha house deposit or university costs). 

Things to consider before releasing equity 

Immediate costs  

There may be fees and charges including:

• Arrangement or legal fees
• Higher interest rates compared to other mortgages on the market

Releasing equity could also impact any means-tested benefits you receive. 

Alternative options  

Before comitting, think about other ways to raise funds. This could be things like downsizing, using savings, or exploring personal loans. Weigh up the pros and cons of each before you decide. 

Long-term impact 

Releasing equity could affect your future finances. It may reduce the value of your estate and affect what you're able to leave behind as inheritance. It could also impact your retirement income or future care options.  

How to release equity from your home

If you're thinking of releasing equity, speak to your lender or a qualified advisor. To speak to our mortgage team about your Principality mortgage, get in touch to explore your options.