Equity Release Explained: How It Works, Costs and Risks

Checked by Suzanne Bradshaw, Director, Mortgage & Finance Arena. Last updated September 2026.

Equity release lets you take money from your home without moving out or making monthly payments. It can pay off a mortgage, top up your income or help your family. But it costs more than most people expect and it reduces what you leave behind. This guide explains how it works, what it costs and what to ask before you decide.

Key facts

• You must be 55 or over to get a lifetime mortgage, and usually older for home reversion.
• You can stay in your home for the rest of your life.
• You do not have to make monthly payments, but you can choose to.
• The money is tax-free.
• Plans that meet Equity Release Council standards mean your family will never owe more than your home is worth.

What is equity release?

Equity is the part of your home you own outright. If your home is worth £300,000 and you owe £50,000 on your mortgage, your equity is £250,000. Equity release is a way to turn some of that into cash while you still live there.

There are two types: a lifetime mortgage and home reversion. Almost everyone who releases equity today uses a lifetime mortgage.

How does a lifetime mortgage work?

A lifetime mortgage is a loan secured on your home. You keep full ownership. You can take one lump sum, or a smaller sum with a cash reserve to draw from later. With a cash reserve, you only pay interest on the money you have taken.

With most plans, the interest is added to the loan each year. You then pay interest on that interest. This is called roll-up and it makes the debt grow fast. At 6%, the amount you owe would double in about 12 years. Some plans let you pay some or all of the interest each month to keep the debt down.

The loan is paid back from the sale of your home when the last borrower dies or moves into long-term care. Our lifetime mortgage questions and answers go into more detail.

How does home reversion work?

With home reversion, you sell all or part of your home to a provider. You can live there rent-free for life as a tenant. The provider pays you well below market value for its share, often between 20% and 60%. When your home is sold, the provider takes its share of the sale price. Very few people choose this option now.

How much can I release?

It depends on your age, your home’s value and sometimes your health. The older you are, the more you can take. If you have certain health conditions or smoke, some lenders will offer more. Try our equity release calculator for a rough figure. We then check the exact amount with lenders.

What can I use the money for?

You can use it as you wish. Our clients often use it to pay off a mortgage, clear debts, improve their home, top up their income, buy a car or help family. Some use it to help buy a new home.

What does equity release cost?

The main cost is the interest, which builds up over time. There are also set-up costs:

• A lender application fee on some plans.
• A valuation fee on some plans.
• Your solicitor’s fee. You must use your own solicitor. We can give you a quote at the start.

If you pay off the whole plan early, you may also have to pay an early repayment charge. This can be large.

Could I lose my home?

No, as long as you keep to the terms of the plan. We only use lenders that meet the standards of the Equity Release Council. These plans give you:

• The right to live in your home for life, or until you move into long-term care.
• The right to move to another suitable home and take the plan with you.
• A no negative equity guarantee, so the debt can never be more than your home’s sale price.
• A fixed interest rate, or one with a cap that can never be passed.
• The right to make some payments with no fee, on plans taken out since March 2022.
• Advice from your own solicitor before you sign.

The pros and cons

The pros

• You get tax-free cash and stay in your home.
• You do not have to make monthly payments.
• Your family cannot inherit a debt larger than your home’s value.

The cons

• The debt grows fast if you let the interest roll up.
• It reduces what you can leave to your family.
• It may affect means-tested benefits.
• It can cost a lot to pay off early.
• It can limit what you do later, such as moving or borrowing more.

Is equity release right for me?

It can suit you if you want to stay in your home, you need the money now and you are happy to leave less to your family. Before you decide, ask yourself:

• Could I downsize instead?
• Do I have savings or other money I could use?
• Could my family help?
• Could I afford monthly payments on a different type of mortgage?
• Have I told my family what I plan to do?

If you could afford monthly payments, a retirement interest-only mortgage may cost less. Read our guide to equity release vs retirement interest-only mortgages.

How we set it up

1. We meet you, in person or by phone, to learn what you need and why. You are welcome to bring family or friends.
2. We look at all your options, including ones that are not equity release.
3. If equity release is right for you, we search the market and explain our recommendation in writing.
4. We apply to the lender and arrange the valuation.
5. Your solicitor explains the plan to you and you sign.
6. The money is paid to you through your solicitor.

Talk to our team

We are members of the Equity Release Council and give advice from our office at Pride Park, Derby. We help clients across the UK. Call us on 01332 300300 or read more about equity release in Derby.

Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. A lifetime mortgage is a loan secured against your home. Check that it will meet your needs if you want to move or sell your home, or if you want your family to inherit it.