How to release equity from your home

What is home equity?

Before we can discuss how to release equity from your home it is important to understand what exactly is home equity?

Home equity refers to the portion of your home that you actually own. It is the difference between the amount you owe on a mortgage and how much your home is worth.

There are two main ways that the amount of equity in your home can increase:

Essentially, as you pay your mortgage and/or your property value increases, you gain more equity in your home. This equity is a valuable financial asset that you can choose to access for various reasons, including funding home renovations or helping loved ones get their first step on the housing ladder.

In this article we explain:

What is mortgage equity?

"Mortgage equity" and "Home equity" are essentially the same thing. They both refer to the market value of your home minus the amount you still owe on your mortgage.

Some lenders might use one term over the other, however, they both represent the same concept.

How can you release equity from your home?

If you own your own property you can release equity from your home. The most common ways of doing this are:

Remortgaging

Remortgaging can be a good way of gaining access to the equity that is tied up in your home without having to move.

If your mortgage term is coming to an end, and you need access to funds you don’t have readily available in savings, you may be able to remortgage to borrow a larger amount through your mortgage.

Read more about remortgaging to release equity in your home.

Downsizing

Leaving your much-loved family home isn’t always an easy decision. However, it sometimes makes financial sense and can be a good opportunity to start afresh. By moving to a smaller home, you tend to pay less on your mortgage and deposit, freeing up equity, or could even afford to buy a home outright, meaning you won't have any mortgage repayments.

If you want to explore whether moving to a smaller home is a good idea for your circumstances, as well as when is the right time to downsize take a look at our articles on downsizing.

Equity release

Equity release includes a range of products created specifically for those homeowners who are 55 and over, allowing them to access cash that is tied up in their home (equity), without having to move from the home they love.

For detailed information read our article explaining equity release.

Secured loans

Secured loans – sometimes known as homeowner loans, home loans, equity loans or second-charge mortgages allow you to borrow money using your home as security.

They typically have lower interest rates than lifetime mortgages, however, if you do not keep up with repayments the lender can repossess your property as a way of getting their money back.

What is an equity loan?

An equity loan, also known as a secured loan, homeowner loan, home equity loan, or second mortgage, is a loan that allows you to borrow money using the equity you have built up in your home.

What are the features of an equity loan?

Is equity release the same as remortgaging to release equity?

Although both equity release and remortgaging to release equity allow you to access cash that is tied up in your home, the two are quite different.

Equity release refers to products designed for those who are over the age of 55 and want access to their money to use in their retirement.

Remortgaging to release equity is when you increase the amount borrowed on your property and replace your existing mortgage with a larger one. You get access to a cash lump sum, which you can use for whatever you require, and you continue to make monthly repayments. There is no additional criteria to remortgage to release equity, other than the criteria set by your mortgage lender.

Find out more in our remortgaging to release equity article.

Equity release vs Remortgage

Is equity release a good idea?

Equity release can be a good idea if you need access to a cash lump sum or money to help supplement your income in retirement. However, long-term, it’s typically an expensive way to access your cash and there could be some alternatives to look into, such as downsizing. Find out more about downsizing in retirement.

It's important to weigh up the pros and cons of equity release carefully. Make sure you explore all of the alternatives and speak to an equity release advisor before making your decision.