Equity release offers homeowners aged 55 and over the chance to unlock tax-free cash from their property without needing to move out. But how does it actually work? Whether you’re planning for retirement, looking to supplement your income, or helping family members financially, understanding the process is key.
In this guide, we’ll break down how equity release works, step by step—from eligibility to repayment—so you can make an informed decision.
What Is Equity Release?
Equity release allows you to access money tied up in your home, while continuing to live there. The cash you release is tax-free and can be used however you like—from home improvements to lifestyle support or clearing debt.
There are different types of equity release, but the vast majority of people use a lifetime mortgage—a loan secured against your home that doesn’t need to be repaid until you pass away or move into long-term care.
🔗 Related: What is the Difference Between Equity Release and a Lifetime Mortgage?
Step-by-Step: How Equity Release Works
✅ 1. You Decide How Much You Need
Use our Equity Release Calculator to estimate how much tax-free cash you could unlock based on your age and property value.
The older you are, the more you can typically release. Some lenders also offer enhanced terms for those with certain health conditions or lifestyle factors (like smoking), allowing you to borrow more.
🔗 More details: How Much Equity Can You Release?
✅ 2. You Choose How to Receive the Funds
You can choose between:
- A lump sum – Receive the entire amount upfront.
- A drawdown plan – Take smaller amounts over time, reducing interest.
- A combination – Take some upfront, with the rest available when needed.
🔗 Related: How Does Equity Release Compound Interest Work?
✅ 3. You Continue Living in Your Home
One of the biggest benefits of equity release is that you remain the legal owner of your home and can stay there for life.
There are no mandatory monthly repayments. Instead, the loan, plus any interest, is typically repaid when your home is sold after you pass away or move into long-term care.
🔗 More details: How Does Equity Release Work When You Die?
✅ 4. Interest Accrues Over Time
Most lifetime mortgages work on a compound interest basis, meaning interest is charged on both the original loan and any interest already added.
✔ The vast majority of plans allow you to make voluntary repayments—towards the interest or loan—to manage the balance.
✔ Choosing a drawdown plan also helps minimise interest accumulation.
🔗 Learn more: Can You Pay Back an Equity Release Mortgage Early?
✅ 5. The Loan Is Repaid Later
The loan is repaid from the sale of your home when the last surviving homeowner passes away or moves into care.
✔ The vast majority of lenders offer a no-negative equity guarantee, meaning you’ll never owe more than your property’s sale value—even if house prices fall.
🔗 Related: What Are the Risks of Equity Release?
Key Features to Expect from Most Plans
- ✔ Stay in your home for life
- ✔ Tax-free cash to spend however you wish
- ✔ The vast majority of plans allow you to make voluntary repayments
- ✔ The vast majority of lenders allow you to ringfence a portion of your home’s value to protect inheritance
- ✔ The vast majority of plans allow you to move house and transfer the plan, if the new property meets criteria
🔗 More details: Can You Take Out Equity Release on a Jointly Owned Property?
FAQs: How Does Equity Release Work?
Is Equity Release Safe?
Yes. Equity release is regulated by the Financial Conduct Authority (FCA). Plans recommended by Equity Release Council members come with strong consumer protections.
Do I Have to Make Repayments?
No, unless you choose to. The vast majority of plans allow flexible voluntary repayments, but you’re not obligated to make them.
What If I Want to Move?
The vast majority of plans allow you to port your plan to a new property, provided it meets your lender’s criteria.
Does It Affect My Inheritance?
Yes. Equity release reduces the value of your estate. However, the vast majority of lenders allow you to protect a portion for your beneficiaries.
🔗 Related: Do I Need a Will with Equity Release?
Next Steps
If you’re considering equity release and want to understand how it could work for your situation:
✔ Use our Equity Release Calculator for a free, instant estimate
✔ Speak to a specialist through our Equity Release Adviser page
✔ Continue reading:
- What is an Equity Release Mortgage?
- What Are the Pros and Cons of Equity Release?
By understanding how equity release works, you’ll be better equipped to make a confident and informed decision.
