Equity Release Calculator

Equity release describes a family of financial products that let homeowners aged 55 or over turn some of the value tied up in their home into cash, while continuing to live there. It's most often used by retirees who are "asset-rich but cash-poor" — significant home equity, but limited pension or savings income — to top up retirement income, clear an existing mortgage, help family with a house deposit, or fund home improvements and care costs.

Unlike downsizing, you don't have to move. Unlike a conventional mortgage or secured loan, you don't need to make monthly repayments (though most products let you make optional ones). The trade-off is that the amount you owe grows over time as unpaid interest compounds, which reduces the equity left in your home.

Lifetime Mortgage

You take out a loan secured against your home, either as a single lump sum, a smaller initial sum plus a drawdown reserve you can call on later, or a regular income. You retain 100% ownership of your home. Interest is charged on the outstanding balance and, if you don't make repayments, is added to the loan each year — so next year's interest is charged on a larger balance. This is the "roll-up" or compounding effect the calculator above models. The loan (plus all accrued interest) is repaid when the last borrower dies or moves permanently into long-term care, normally from the sale of the property.

Home Reversion

The other main type. Instead of taking a loan, you sell all or part of your home to a provider, usually below market value, in exchange for a lump sum or income, while keeping the right to live there rent-free for life. Because you've sold a share of the property outright, you don't benefit from any future growth on the portion sold — the provider does.

Because interest compounds rather than being paid off, a lifetime mortgage balance can grow quickly over a long retirement. For example, an £80,000 lump sum released at age 70 against a £400,000 home, at an assumed 6.5% fixed rate with 3% annual house price growth (our illustrative assumptions, not market rates — providers set the real rate), would leave an accrued loan balance of around £205,747 after 15 years — against a projected home value of around £623,187, leaving roughly £417,440 of remaining equity. Use the calculator above with your own numbers to see the effect on your situation.

On top of the interest roll-up, MoneyHelper lists costs such as an arrangement fee to the lender, legal and valuation fees, adviser fees and a completion fee, and there may be early repayment charges for paying off the loan early. Many plans let you make optional repayments, which slow the roll-up if you have some spare income — check the plan's terms for limits and charges.

Inheritance Tax

The cash you release is a loan, not income, so there's no Income Tax or Capital Gains Tax to pay when you receive it. But it does shrink your taxable estate for Inheritance Tax: any amount you spend or give away is no longer part of your estate at death, and the outstanding loan balance is deducted from your property's value when your estate is valued. Every estate still has the £325,000 nil-rate band (frozen until 5 April 2031) plus up to £175,000 residence nil-rate band when a home passes to direct descendants, before the standard 40% rate applies to anything above. Gifting released equity can also start the 7-year clock on Potentially Exempt Transfers — see our Inheritance Tax Calculator for the full picture, including the gift taper.

Means-Tested Benefits

Released cash counts as capital for means-tested benefits. Pension Credit disregards the first £10,000 of capital, then assumes £1 of weekly "tariff income" for every £500 you hold above that — which can reduce or remove your entitlement (and passported extras like the Winter Fuel Payment) if a large lump sum sits unspent. Use our Pension Credit Calculator to check the effect on your own claim, and consider a drawdown facility — releasing smaller amounts as you need them — to keep more headroom under the disregard.

According to MoneyHelper, Equity Release Council (ERC) members have standards to meet when making a recommendation, including:

• Right to remain — you can stay in your home for life, or until you move into care.
• No-negative-equity guarantee — you won't repay more than the value of your home.
• Fixed or capped interest.

They must tell you if a standard is not met with the lenders they recommend. A lifetime mortgage without the no-negative-equity guarantee must say so, and your estate then pays off the rest of the loan; this calculator assumes the guarantee applies.

Before deciding, MoneyHelper says you must speak to an equity release specialist about the risks (or discuss other options with a mortgage adviser), and check the adviser is registered with the Financial Conduct Authority using the FCA Firm Checker. You also need your own solicitor: the provider can't release the money until you've taken legal advice. This calculator is a planning tool, not a substitute for that advice or a lender quote. Because equity release reduces the value of your estate and can affect means-tested benefits, it's also worth discussing the decision with family and considering the alternatives (downsizing, a retirement interest-only mortgage, or using savings and other assets) first.