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Finance

What is Equity Release?

By Shannon Kietzman
Updated May 17, 2024
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Equity release is the process of releasing equity or money from a homeowner’s primary residence without having to move out of it. The equity release method is often utilized by seniors who want to free up their money later in life. Depending on where a homeowner lives, it may be possible to make this type of arrangement as early as one's mid-50s.

The main purpose of equity release is to raise money, either for income or for lump sum purchases. Many seniors use equity release in order to purchase a second home or to add to their retirement funds. An equity release may also be helpful if late life medical bills are an issue.

Typically, this method of raising capital is undertaken when other options are not available. This is often the case when purchasing a second home, because taking out a second mortgage requires a large down payment. Using equity release, it is not necessary to come up with these funds. Simply put, equity release plans give homeowners a way to turn some of the value of their homes into cash.

There are several methods that can be utilized to release equity from a home. A financial advisor should be consulted to determine the best form of equity release for a person’s unique situation. In general, the best candidates for equity release are people over 55 years of age, those who own a property worth at least 80,000 US dollars (USD), and those who want to remain in their current home rather than downsize the value of their property in order to release capital.

Reasons to consider an equity release include home improvements or adaptations, going on a special trip or vacation, purchasing a new car, boosting overall retirement income, or paying for immediate or future medical care needs. Many older people also find equity release to be a practical means for reducing inheritance tax liabilities for their family and for helping their grandchildren pay for post-secondary education. Despite the benefits of an equity release, it is important to remember that this method cashes in on the equity built in the home. Therefore, if the house is sold, the built up equity is lost and no longer available.

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Discussion Comments

By Mykol — On Oct 01, 2011

If someone is curious about how using an equity release works, there are several reputable online sites where you can research your information as well.

Many of these sites will also have an equity release calculator that can be quite helpful. By plugging in the correct numbers, such as how much equity you have in your home, you can get a general idea of how much cash you might be able to receive.

I would never rely solely on information that I gathered from the internet, but it is a good starting point.

Before you ever meet with a finance professional, you can have a good idea of how the whole process works. This will also help you make a well informed decision that you understand and have done some of your own research on.

By golf07 — On Sep 30, 2011

I think it is important to speak with a professional finance person to learn as much as you can about a home equity release if it is something you are considering.

It sounds like it would make a lot of sense up front, but would want to know all the fine print before I went ahead and used it.

I do know of a few situations where friends have had to use something like this to pay for unexpected medical bills that have come up.

It doesn't take long for major medical expenses to add up if you have something like cancer or several major surgeries. Sometimes this is the only avenue they have to come up with the cash that is needed to pay these medical bills.

By clareyates — On Sep 06, 2011

I have just inquired about equity release on a website in the uk. I don't fully understand it and am researching it all. I wondered if anyone else had debt with these people.

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