Equity release calculator

Equity release could allow UK homeowners aged 55 or over to unlock some of their home’s equity, in the form of a tax-free lump sum and/or smaller payments.

A lifetime mortgage – the most common equity release product – could help you:

• Potentially increase the value of your property with renovations

• Help the family with an early inheritance

• Pay off an existing mortgage

• Fund large purchases or holidays.

Lifetime mortgages can be complex and don’t work in the same way as standard mortgages or loans.

Instead, lifetime mortgages are loans secured against your home and they will reduce the value of your estate as well as potentially affect your entitlement to means-tested benefits.

Financial Conduct Authority (FCA) regulations require you to take personalised professional advice before taking out an equity release product. We can introduce you to Royal London Equity Release Advisers, who can give you advice.

The equity release calculator will give you an approximate idea of how much equity you might be able to release with a lifetime mortgage. It will only be an estimate, as the amount you can release will depend on:

• Other lending criteria

• The condition of your property

• Your age

• The lifetime mortgage you choose.

Compare the Market introduces customers to Royal London Equity Release Advisers, who provide the free equity release calculator and offer no-obligation advice.

With a lifetime mortgage, you borrow against a portion of your home's value. There'll be limits on the percentage you can borrow, generally depending on the age of the youngest homeowner.

The full amount of a lifetime mortgage, plus the interest accrued, doesn't have to be repaid until the last homeowner dies or enters long-term care.

Ongoing repayments are optional. If you choose not to make any, the interest charged will compound over time. Essentially, this means that you pay interest on the interest.

If you do choose to make repayments, you might make them to:

• Pay the interest each month

• Reduce the amount owed.

You can also choose to make ad hoc payments when you have the money available.

You should explore the pros and cons of making repayments with the help of an equity release advisor.

With a lifetime mortgage, which is a loan secured against your home, you could release equity as a lump sum or a drawdown.

Lump sum

You get a one-off, tax-free lump sum from your home. If you choose not to make repayments, the interest will roll up over time.

The interest, along with the initial loan, is repaid once the last homeowner dies or enters long-term care, usually through the sale of the property.

Drawdown

You agree the total sum you can borrow with the lifetime mortgage lender. You can then release an initial amount and keep the rest in an interest-free reserve to be accessed in instalments.

The interest rate on your reserve will be fixed at the time you access it, so it could be higher or lower than your initial rate. The balance, plus any interest accrued, is usually repaid through the sale of the property once the last homeowner dies or enters long-term care.

There's a variety of other flexible features that could be available, whether you release your equity as a lump sum or as a drawdown. An equity release advisor will be able to tell you more.

Simply put, equity is the share of your home that you own outright, without owing a mortgage or loan secured on it.

For example, if your mortgage balance is £50,000 and your house is worth £250,000, you’ll have £200,000 equity in your property.

With most lenders, the minimum age to release equity is 55. The maximum amount you could release then typically increases as you get older.

Your property must be in the UK, and where you live, the property type and your health may also influence how much you’re able to release.

When considering how much equity to release with a lifetime mortgage, you might also want to think about:

• Medically underwritten products – with one of these, your health and lifestyle will also be considered when assessing the maximum amount that you may be able to release.

• Lenders’ fees – you may be charged an arrangement fee. You might be able to get this deducted from or added to the loan amount, but this means that interest will be charged on it and you’ll end up owing more.

• Cashback equity release plans – some plans come with cashback incentives. You can use the extra cash in a variety of ways.

• Joint vs single – if you’re married, most lenders may insist on a joint application. But you might prefer a single application if the house is in one name or one of you is below the age of 55, for example. In this circumstance, an occupiers’ waiver could be required.

• Lodgers – there may be limited equity release plans available if you receive rent from someone living with you.

There are costs involved in setting up a lifetime mortgage, which could include:

• Fees for professional financial advice, which may involve a commission fee

• Valuation fees

• Solicitor’s fees

• Administration costs charged by a provider to set up the mortgage. These are often called lender, completion, arrangement or application fees.

• You may also be charged early repayment fees if you pay off your loan early.

Once the lifetime mortgage is set up, you won’t have to make any repayments unless you choose to do so.

With products from Equity Release Council members, you’re guaranteed the right to make these voluntary payments to help cut the costs of releasing equity, subject to lender criteria.

If you want access to some extra cash without having to sell up and move house, using the equity in your home could be a good option. That said, it might not be the right choice for everyone.

Before you make any kind of decision, it’s a requirement to get professional financial advice. This will help you weigh up the pros and cons to better understand what equity release could mean for you.

You could be eligible for a lifetime mortgage if:

• You’re over 55

• You own the UK home you want to release equity from, with no mortgage, or a small enough mortgage that you can pay it off with the released funds

• Your home is in good condition

• Your home is worth more than £70,000

• You want to borrow a minimum of £10,000.

With a normal mortgage, you pay interest monthly. But with a lifetime mortgage the interest rolls up every month and is added to the amount you released. Everything you owe usually gets paid back in one go. This will be once the house is sold or when the last homeowner on the deeds dies or goes into long-term care.

This means you won’t have the full current value of your home to leave to others. If this is important to you, you might want to consider an equity release plan that allows you to ring-fence some of your home’s value as an inheritance for children.

Can I repay early?

You do have the option to repay early if you want to, but you might have to pay early repayment charges. If this is something you’re likely to want to do, talk to an adviser about a plan with fixed and defined early repayment charges.

All plans that meet the Equity Release Council product standards will also allow you to make voluntary payments to mitigate the cost of borrowing.

You can often make payments up to 10% of the mortgage value per year (but this varies among lenders).

Anything you pay over this amount may also be subject to an early repayment penalty.

A home reversion plan is the other type of equity release product. It involves selling all or part of your home to a provider for less than its market rate, in exchange for a lifetime lease.

If you want to know about the different types of equity release plans and the choices you have, our guide to equity release explains the differences and their benefits.

Compare the Market introduces customers to an equity release adviser, Royal London Equity Release Advisers. It does not advise on home reversion plans. The equity release calculator on this page is solely for lifetime mortgages.

If you’d like advice on a home reversion plan, you can find a qualified advisor at unbiased.co.uk.

Compare the Market introduces to an equity release advice provider, Royal London Equity Release Advisers^. It is authorised and regulated by the Financial Conduct Authority.

Royal London Equity Release Advisers has whole of market access to plans from lifetime mortgage lenders that are members of the Equity Release Council, which sets standards and best practice for equity release lenders.

To use the equity release calculator, you’ll need an estimate of how much your house is worth and some personal details.

If you want to go ahead and release equity from your home, you can book an appointment with an advisor from Royal London Equity Release Advisers.

Your advisor will be able to discuss your needs, current circumstances and what you want to achieve.