Is Equity Release a Good Thing?

Is It a Good Idea to Unlock Capital With Equity Release?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Is Equity Release a Good Idea in 2022? Understand the Pros & Cons, & How It Works. Discover if Equity Release Is the Best for You.

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Is equity release a good idea in 2022 or just another scam?

With so many fraudsters out there, we check all the facts. No need to worry, we’re here to be your guide.

What You’ll Learn in This Article:

    Our astute financial experts at SovereignBoss spend time researching the financial markets so we can bring you the facts. 

    Read on for more!

    What’s Equity Release?

    Equity release is a term that refers to financial products that you can use to unlock your home’s capital.

    Only those over the age of 55 and who’re homeowners are eligible for equity release.

    You can utilise either a lifetime mortgage or a home reversion scheme. 

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    Lifetime Mortgage

    There are 2 main types of lifetime mortgages available, the 1st being a lump-sum lifetime mortgage and the 2nd being a drawdown plan.

    A lump-sum lifetime mortgage and a drawdown lifetime mortgage are secured against your home; however, you retain homeownership.

    With a lump-sum lifetime mortgage, you’re paid out a tax-free cash amount which will accrue interest.

    A drawdown lifetime mortgage pays out a smaller lump-sum upfront followed by installment amounts; alternatively, it pays only regular installments.

    Interest repayments on both a lump-sum and drawdown lifetime mortgage are voluntary as interest will be claimed from your estate when your home gets sold. 

    The benefit of a drawdown mortgage is that you’re only liable for the interest portion of the actual value paid out, not the total loan approval amount.

    It’s also possible to settle a lifetime mortgage if you choose to, whether it’s a lump sum mortgage or a drawdown plan.

    Home Reversion

    Home reversion plans, in short, involve you selling your property as a whole or a part thereof to a home reversion provider. 

    The amount you sell your home or part thereof for will be less than the market value of your property.

    You’ll be allowed to stay in your home as a life tenant.

    The disadvantages of home reversion plans are that you don’t retain your homeownership. 

    Home reversion will detract from your beneficiary’s inheritance one day when you pass on.

    Is Equity Release Safe?

    Yes, equity release is safe if you use a provider and adviser accredited by The Equity Release Council1. 

    Membership will ensure that providers are reputable and that you’re protected against negative equity and unscrupulous advice.

    It’s best to follow your financial adviser’s advice on the best plan for you.

    Is Equity Release A Good Thing?

    Equity release can be a good thing in many situations, such as paying for care in later life or consolidating your debt2. 

    The money released from your home allows you to reach financial goals that would otherwise be unobtainable. 

    When Is Equity Release a Good Idea?

    Equity release is a good idea in the following situations: 

    • To pay off your current mortgage and still live in your home.
    • To bolster your income for retirement.
    • Pay for your home improvements.
    • Provide a living inheritance to those you choose.
    • Pay for that vacation you’ve always dreamed of.

    Is There a Downside to Equity Release?

    There is a downside to equity release, and there are pitfalls you need to avoid.

    You must be aware that you’ll get far less than the market value of your home.

    You’ll receive much more if you sell your home or consider downsizing3, but then you would still need to pay for a new property to live in.

    Equity release will certainly reduce the value of your estate.

    Additionally, by changing your income situation with equity release, you may change your eligibility for certain means-tested state benefits. 

    With a home reversion plan, you may be unable to move home.

    It’s always best to take legal and financial advice before signing any contracts or accepting offers.

    Is Equity Release Right for Me?

    When you decide if equity release is a good idea for you, you’ll have to consider your financial position carefully. 

    Always ensure you get the best financial advice and speak to your family before making a decision.

    You may want to consider the following:

    • Has a financial advisor told you that equity release is your best option?
    • Can our savings and other forms of income cover your retirement expenses?4
    • If a reduction in your beneficiary’s inheritance isn’t a significant concern for you.
    • Is downsizing an option?
    • If consolidating your debt using equity release will change your financial position.

    Common Questions

    Is Equity Release Becoming More Popular?

    Is Equity Release a Good or Bad Idea?


    While equity release isn’t the solution for everyone, it has fantastic benefits for those who need it. 

    Before deciding if equity release is a good idea, consider all your options and get the best financial advice to protect yourself.

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