How does equity release work?

Would you like to be able to spend some of that money now? That is the tempting offer from firms that want to sell you what are called equity release products.

That just means you take, or “release”, some of the value of the “equity” in your home.

It is done by the firm lending you money secured against the value of your home.

You don’t pay them back until you (and your partner if you have one) either die or move permanently into long term care. It’s called a lifetime mortgage and for the right people in the right circumstances, equity release can provide them with cash when they need it.

But there are some warnings, too. With a lifetime mortgage you borrow part of the value of your home – perhaps a third at age 65 – and every month, interest is charged. You do not pay that interest at the time. Instead, it is added to the loan. So every year the debt – and the interest charged on it – grows.

If you live a long time or if house prices fall, there is a danger the debt will get bigger than the value of your home. That is why you should only ever use an equity release firm that is a member of the Equity Release Council. They all give a guarantee that you can never end up owing more than the value of your property.

The other warning is for people who get means-tested pension credit to boost their income or get their council tax reduced or paid by the local council. If you take out an equity release loan, the cash will count as capital and will probably stop all your means-tested benefits.

The positives are that you can release cash that you can spend to make your retirement easier, better, or just more fun. You can renew the kitchen or bathroom, improve your garden, buy a new car, go on a cruise, pay off your debts or help a child buy their first home. It is your money to do what you want with. Why not use it before it is too late?

For more information, visit equityreleasecouncil.com

• To get your FREE guide to equity release written by Paul Lewis please click here