What is equity release?

Equity release is an umbrella term for products that let homeowners aged 55+ access the value tied up in their home as tax-free cash, without having to sell or move out. The loan (plus any rolled-up interest) is repaid from the proceeds of the property when you die or move into long-term care.

It's designed for people who are asset-rich but cash-poor — significant equity in their home, but not enough liquid savings or pension income to fund the lifestyle, home improvements, gifting or care they want.

• Lump sum — release everything in one go. Interest rolls up on the full balance from day one.
• Drawdown — release an initial amount and reserve the rest to draw later. Interest only accrues on what you've actually drawn — usually cheaper overall.
• Optional payment — you can pay some or all of the interest each month to slow or stop the roll-up. Stop paying any time without penalty.
• Enhanced — improved terms (more cash, lower rate) if you have certain health conditions that may shorten the expected loan life.

Most lifetime mortgages charge fixed compound interest. Each year's interest is added to the balance, and next year's interest is calculated on the new total.

Roughly speaking, at 6% rolled-up interest, the balance doubles every 12 years. A £60,000 release at age 65 could become around £120,000 by age 77 and £240,000 by age 89 — assuming no repayments are made.

This is why drawdown and optional payment plans matter: they can dramatically reduce the long-term cost compared to a lump-sum, fully-rolled-up plan.

• Downsizing — release equity by moving to a smaller home, no compound interest
• Retirement interest-only mortgage (RIO) — pay monthly interest, capital repaid from your estate
• Standard remortgage — if you're still working with sufficient income
• Family loan or gift — if relatives can help
• Pension drawdown / annuity — if your pension assets allow

A regulated equity release adviser is required to consider these alternatives with you before recommending a plan.