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

The dominant product — roughly 9 in 10 UK equity release plans. 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

A much less common alternative. Instead of taking a loan, you sell all or part of your home to a reversion company at below market value in exchange for a lump sum or income, while retaining a legal 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 reversion company does. Most UK providers and most equity release customers use a lifetime mortgage instead.

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 illustrative 6.5% fixed rate with 3% annual house price growth, 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.

Additional costs typically include an arrangement or product fee, a valuation fee, and legal/solicitor fees — usually a few thousand pounds combined, on top of the interest roll-up. Most Equity Release Council products also let you make penalty-free voluntary repayments up to an annual limit, which can substantially slow the roll-up if you have some spare income.

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.

Every product carrying the Equity Release Council's approved logo must meet its Standards, which include:

• No negative equity guarantee — you or your estate will never owe more than the home sells for.
• Right to remain — you can live in the property for life, or until you need long-term care.
• Right to move — you can transfer the plan to a suitable alternative property without penalty, subject to lender criteria.
• Fixed or capped interest rates — for lifetime mortgages, so the roll-up rate can't be increased at the lender's discretion.

Equity release is a regulated activity in the UK. Lifetime mortgages are regulated by the Financial Conduct Authority as mortgage contracts, and by law you must receive independent, personalised financial advice from a qualified equity release adviser before taking out a plan — this calculator is a planning tool, not a substitute for that advice or a lender quote. Because it 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 standard retirement interest-only mortgage, or other borrowing) first.