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Home Loan Equity Release for Seniors – Guide & FAQs

Home Loan Equity Release For Seniors

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Is it possible to get a seniors equity release home loan? In this guide, we ask if senior citizens in the UK can get a home equity loan as a retirement income, and look at some alternative options. If you need lump sum cash as an older person, you’re going to want to hear this! 

What is a home equity loan?

A home equity loan is a loan secured against some of the home equity you have built up. To fully understand how a home equity loan works, you must first know about home equity. 

Home equity is the percentage of your property that you own with no debts attached. It is calculated by subtracting the value of your mortgage (plus any other debt secured by your home) away from the current value of your home, which may not be the same as the price when you purchased it. For example, a homeowner with a home worth £200,000 with a £90,000 outstanding mortgage will have £110,000 in home equity (£200,000 – £90,000). 

Thus, a home equity loan lets you borrow against some of this equity. It is a debt separate from your mortgage and will require an additional monthly repayment with interest attached. If you do not keep up with monthly repayments, your home may be repossessed. 

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Can seniors get a home equity loan?

Some home equity loans may be available to some seniors, depending on how long they need to repay and their employment status. But in general, home equity loans are usually only available to younger homeowners. 

What is an equity unlock loan for seniors?

Although getting a home equity loan as a senior can be difficult, there are still ways for seniors to access some of their home equity as a lump sum or drawdown. They can use equity release schemes, sometimes known as equity unlock loan for seniors, to access money and make no repayments. They must own their home with no mortgage and must be at least 55 years old. 

Instead of having to make monthly repayments, the debt is only repaid from the sale of their property when they die or if they move into long-term care. In any other situation, you cannot be forced to sell your home. 

If you consider an equity release scheme, you should only use lenders that are authorised and regulated by the Financial Conduct Authority (FCA) and preferably one that is a member of the Equity Release Council. 

Equity release in detail

Seniors have two options when wanting to release equity from their home in the UK. They can use a lifetime mortgage, which is more common, or they can use a home reversion plan. We explain both below:

Lifetime mortgage (reverse mortgage)

A lifetime mortgage allows the senior homeowner to access up to 60% of their home equity as a lump sum or drawdown. The loan is charged at a fixed interest rate until the home is sold, either after death or moving into long-term care. So the interest rolls up rather than needing to be repaid, although some lenders will allow voluntary interest payments. 

Even with standard interest rates, having a lifetime mortgage for over a decade could double the amount owed, which seriously detracts from any inheritance you planned to pass on. 

Home reversion plan

Home reversion plans do not charge interest on the loan, but from the outset, the homeowner must agree to give the lender a greater percentage of the property’s sale proceeds. For example, you may release 20% equity but have to give up 50% of the home’s value when it is sold. Again, this can significantly eat into any inheritance you wanted to pass on. 

Is there an upper age limit for equity release?

There is no upper age limit for equity release. Martin Lewis states that it can be a beneficial option but the general rule is to release as little as possible as late as possible. Leaving it later to release equity can secure you a better interest rate.

What are the advantages of equity release?

The main advantages of older people using an equity release scheme to fund their retirement are:

  1. The money is not subject to tax
  2. You can opt for a drawdown as a type of regular income
  3. It can be spent on anything you wish
  4. You continue living in your property and pay no rent
  5. You cannot be evicted for common reasons
  6. There is no repayment to make
  7. You can make voluntary repayments to keep the debt lower if preferred
  8. You can still move home and take your mortgage with you, as long as the new property is considered suitable by the lender. 

What is the catch with equity release?

The overarching ‘catch’ with equity release is the amount you have to repay can be more than double the amount borrowed. For example, a lifetime mortgage of £65,000 at an interest rate of 6.4% for 12 years will create almost a £137,000 debt. However, there should be no ‘catch’ as everything should be fully explained by a financial adviser prior. 

What is the current interest rate for equity release?

Current interest rates on equity release schemes range from 2-10% with the majority of lenders. The rate you are offered will depend on your age and specifics about your property. 

Is a reverse mortgage a good idea?

A lifetime mortgage can be a great way to access lump sum cash to make retirement more comfortable. The decision can be made more difficult if you have estate beneficiaries relying on the inheritance you pass on. Those with no children may find it easier to use equity release compared to those that do. An adviser will help you make an informed decision. 

Learn more about equity release for free here!

MoneyNerd has plenty more free guides discussing equity release. Learn about the potential pitfalls, read about the Equity Release Council and uncover whether it can affect eligibility to receive a state pension – all on MoneyNerd. 

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