How to release money tied up in your home

If you own a property, you have a valuable asset to your name. The trouble is that your money is often tied up within those four walls once you take out a mortgage and exchange contracts. If you have money tied up within your home, and you find yourself in a situation where you need money, or you’re looking to lower your monthly outgoings, there are ways to release equity. If this an avenue you wish to pursue, it’s always beneficial to explore the options open to you.

What exactly is equity release?

Equity release is a term used to describe financial products that are available to homeowners. These products enable you to take a lump sum or a series of smaller payments. There are two main options for equity release, and these include a lifetime mortgage and home reversion.

A lifetime mortgage enables you to take out a mortgage on your property and then either make payments or let the interest roll over throughout the term of the loan. The mortgage is paid off in full including interest when you die or you go into care on a long-term basis. With a lifetime mortgage, you can opt to ring-fence a proportion of the property’s value. This gives you the chance to use part of the equity as an inheritance for your children or grandchildren. Most providers offer lifetime mortgages for property owners aged over 55.

Home reversion offers you the opportunity to sell part of your home. You will receive a lump sum or a number of smaller payments from a home reversion provider. When you sign this kind of agreement, you are able to continue living in the property without paying rent, but you will be responsible for maintaining and insuring the home. You can ring-fence part of the property for inheritance reasons if you wish to. With home reversion, you take your share of the sale price when the property is sold.

Other equity release options

If you need to release money from your property, there are other options on the table. Remortgaging may work for you if you have an existing mortgage, and you increase the value of the loan to access a lump sum of cash. If you don’t want to sell or move house, it’s worth exploring your remortgage options and getting some quotes. If you are thinking of remortgaging, make sure you can afford the repayments without having to survive on nothing in the days before payday. If you can’t cover the cost of your mortgage, there’s a risk that you’ll lose your home.

Another product that may offer you an opportunity to release equity in your home is a second charge, also known as a second mortgage. Second charge mortgages are loans that are secured against your home, and they can offer an alternative to remortgaging. If you take out a second charge mortgage, this effectively means that you’ll be paying off two mortgages, but it can give you access to cash. When you apply, the amount of money you’re offered will be based on the value of the equity in your home. If your home is worth £300,000 and you have £180,000 left to pay off your mortgage, this gives you an equity value of £120,000, for example.

Moving house

If you don’t want to change your mortgage, remortgage or borrow any more money, you might be thinking about moving house. If you choose to move, you could save money, especially if you’re willing to move to an area where house prices are lower, or you’re looking to downsize. Moving can be stressful, but it could also result in you paying out less for a mortgage every month, reducing your debt, and improving your financial situation. House prices tend to be based on location and size, and if you’re open to looking at cheaper properties, you could benefit from selling your home. If you already have an equity release plan, you can still move, but there are restrictions. Your provider will be looking to loan the same amount, so you’ll need to check that the value of your new property is high enough to satisfy the criteria. If the value is lower, you might have to pay off some of the loan early.

If you’ve got money tied up in property, it is possible to release equity, and there are various options on the table. If you’re unsure which avenue to take, it’s wise to see a financial adviser. They will be able to provide advice and recommendations based on your individual circumstances.

For further equity release examples this guide from Lending Expert goes into further detail.

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