How Much Equity Do I Have And What Can I Do With It?

Equity in your home is the value of your property minus the amount you owe on your mortgage.

You caen work out the amount of equity in your home by:

• Estimating the current value of your property (you can get a local estate agent to do this or look at prices of similar homes in your area)
• Subtract the amount you have left to pay on your mortgage from the property value

The difference between these two figures is how much equity you have in your home.

For example:

• Your house is worth £300,000.
• You have £255,000 still to pay on your mortgage.
• The equity you have in your home is £45,000.
• This is 15% equity.

Negative equity is when your mortgage is worth more than what your property is worth.

This sometimes happens when your property is falling in value compared to when you first bought it.

For example:

• Your mortgage balance is £250,000
• Your home was valued at £275,000 when you bought it BUT is now worth £240,000
• You are in negative equity of £10,000

Generally speaking, homebuyers with smaller deposits are more at risk of negative equity because the size of the mortgage is larger.

Negative equity can cause issues if you want to sell your home because you’ll still need to pay any outstanding mortgage when you sell the property.

Equity release allows you to borrow money against the value of your home without having to sell it and move out.

It’s only available to homeowners aged 55 and over.

The most common types of equity release products are:

• home reversion: when you sell all or a percentage of your home to access money tied up in it
• lifetime mortgage: when you borrow money against the value of your home by taking out a loan secured on the property.

It’s important to note that there are risks involved in using equity release and you’ll need to speak with a specialist equity release adviser or a mortgage broker.

Typically, you can take equity release as:

• a lump sum
• smaller amounts as regular income (which is called drawdown)
• a combination of the two.

Releasing equity from your home can take around eight weeks.

Some of the benefits and disadvantages of equity release include:

Reasons to use

• You can stay in your home
• You can use the equity to finance large purchases
• There isn’t an affordability assessment unlike traditional mortgages
• You can still benefit if the value of your home increases

Reasons to avoid

• It could impact the benefits your entitled to
• Lifetime mortgages could be more expensive
• There are application fees which could be around £1,500-£3,000
• Could reduce the amount of inheritance you can leave
• Releasing equity for from your property too early means you might not be able to use it for later life care
• Complicated to undo if you decide to change your mind
• Could make it more complicated to sell or downsize later in life

Equity release could help you to access cash tied up in your home to cover large expenses or everyday costs if you decide to take smaller sums as regular income.

However, it’s important to be aware of the drawbacks before considering it.

Whether it’s right for you depends on your personal circumstances including your:

• age
• health
• financial circumstances
• equity release sum
• property type
• future plans

Some of the questions to ask yourself are:

• can you afford the interest payments?
• will equity release unlock the true value of your home vs selling on the property market?
• will access your funds early affect later life expenses such as retirement and elderly care?
• will you want to move home or downsize later?
  could your benefit entitlements be affected by using equity release?

You’ll need to speak with an equity release adviser or mortgage broker before you can apply for equity release to make sure it’s the right next step and doesn’t derail your finances.

If you’re not sure equity release is right for you, there are some other options to consider:

1. Downsize your property
Sell up and move to a smaller home that costs less.

You can then use the sale profits to fund what you need.

2. Retirement interest-only mortgages
A retirement interest-only mortgage could help if you’re struggling to afford your monthly mortgage repayments.

Each month you’ll pay the loan interest. The amount of money you borrow is only repaid when you sell your home, move to long-term care or pass away.

3. Cash in other assets
You could consider selling investments or using savings to access cash to pay for what you need.