Your equity release checklist

How to do equity release the right way

If you’re looking for a way to unlock cash from your home, you might be wondering ‘Is equity release a good idea’ and ‘How do I avoid an equity release horror story?’. 

Equity release is a way of releasing money locked up in the value of your property. The most common type of equity release is a lifetime mortgage, which is a long-term loan secured on your home, allowing you to access cash from its value whilst still living there. There are no monthly repayments - instead the loan and accumulated interest are usually repaid from the sale of your home when you (and your partner, if you take out a joint lifetime mortgage) die or go into long-term care. Equity release works for lots of people, but it’s not right for everyone – so there’s lots to think about before you officially give it the go ahead.

Here are a few things to tick off first.

  1. Do your research
    Saying yay or nay to equity release is just like any big decision: doing your research is key.

    You’ll need to know the ins and outs first so you know you’re releasing equity in a way that’s right for you and your future.

    If you get it wrong, it could be an expensive mistake.

    Make sure you use a reputable company
    If you’re just starting off on your research journey, the Equity Release Council is a great first stop. The council protects customers in the equity release industry, and they’ve pulled together a list of reputable companies which is definitely worth having a flick through.
  2. Understand the ins and outs of equity release
    You might have heard one of those equity release horror stories – where it turned out to be the wrong move, or someone needed to repay much more than their home was worth.

    That’s why you should make sure you’re confident in the ins and outs of equity release, so you’ve got your facts straight before you push forward. For example – what’s the difference between re-mortgaging and equity release? What kinds of equity release products are out there? What are the pros and cons of equity release?
    A financial adviser will be able to help with all these questions (and loads more), which is why speaking to an adviser is such an important part of the process.
  3. Crunch the numbers
    If you’re working out whether equity release makes financial sense to you, it’s a good idea to crunch the numbers up front - especially when it comes to interest rates and negative equity.

    If you’re in ‘negative equity’ it means you owe more on a mortgage than your property is currently worth. For example, if your home is worth £200,000 and your mortgage is £210,000, then you’ve got £10,000 worth of negative equity.

    If a company is a member of the Equity Release Council, it also means you'll get a 'no negative equity guarantee' with your lifetime mortgage, meaning you'll never owe more than the amount received from the sale of your home, provided that it's sold for the best price reasonably obtainable. But this could still mean that all your property's value is used up when the lifetime mortgage is paid off.

    The interest rate on a lifetime mortgage is also important. As there are no monthly repayments, you're charged interest on the interest that has already been added, as well as on the amount you borrow, which quickly increases the amount you owe.

    Interest rates and negative equity can be complicated, so it’s something to note down and talk about with a financial adviser while you’re weighing up your options.
  4. Have a chat with your family
    Equity release is a big decision, so you should talk to your family first and see what they think. When you die or go into long-term care, your lifetime mortgage will need to be repaid, which will reduce the amount of inheritance that you can leave them, so it's helpful if the people you love understand the reasons behind your decision.

    As we mentioned earlier, it’s also a good idea to check if the company you’re thinking of going with is part of the Equity Release council. If they’re a member, they’ll need to provide the ‘no negative equity’ guarantee, which protects your loved ones and could make sure they won’t inherit any debt from your lifetime mortgage. If you go with a company that isn’t a member, you might not get any such guarantee.
  5. Get some expert advice
    This is one you’ll definitely need to tick off the list: having a chat with a financial adviser.

    They’ll be able to look at your financial situation in detail and talk to you about all the different pros and cons of equity release for your specific circumstances. They’ll also be able to answer any questions you’ve got and explain all the costs that’ll be involved.

    If you don't have a financial adviser already, you can find one in your area at www.unbiased.co.uk. A financial adviser may charge for their services. It’s useful to remember that taking out an equity release product can affect your tax position, and whether or not you’re entitled to means-tested benefits. Alternatively, for advice on Aviva's lifetime mortgages, you can call 0800 092 7903 to find out if you're eligible or to book an appointment.

    Your call will be answered by a financial advice firm that specialises in equity release and has been specially selected by us to provide information and advice on our products. They are authorised and regulated by the Financial Conduct Authority.
  6. Learn about early repayment charges
    A lifetime mortgage is intended to last until you die or leave your home to enter long-term care. The provider will take how long this is likely to be into account when deciding how much they can lend you and the interest rates they charge. As a result, they could suffer losses if you decide to repay the loan early, so you may have to pay a substantial early repayment charge.

    It's a good idea to check the terms and conditions of your chosen provider to find out the circumstances in which an early repayment charge may or may not apply and how much it could be. Some providers also allow you to make voluntary repayments without penalty, up to certain limits, so you should find out if this option will be available if you think that you may want to do this.
  7. Think about downsizing
    Another option you might not have thought about yet is selling your home to unlock cash instead. You could downsize to a smaller property or one in a lower priced area. Once you’ve sold your home and all costs have been paid, you’d get to keep the money left over.

    This is quite simple from a financial point of view – essentially, you’d sell your house at today’s market value and you could then decide to buy a cheaper one. You could then use the money you’ve got left over for whatever you want.

    Whether you want to unlock cash from your property for home renovations, helping someone you love, or just giving your income a boost, equity release could help - but it’s a huge decision that you need to think about carefully. You can also read more about equity release in our FAQs.

Interested in equity release?

Find out how much you could borrow, the benefits, risks and more.

Equity release articles

Take a look at our latest news and guides.