Many people who release equity from their homes are doing so to pay off their mortgage or to consolidate unsecured debts. It can be a great way to sort your finances as you enter retirement and means you can avoid having to work for longer. If you take out a loan to release equity from your property you do not have to pay it back until you die or move into permanent, residential care.

A lifetime mortgage or home reversion plan does not just have to be used for achieving financial security but can also free up cash for you to use for home improvements or holidays. It also means that you can pay off your debts but also stay in your own home.

can i apply for equity release 300x200 - Can I release equity to pay off debt?

Does it matter what kind of debt?

You can use equity release to clear any type of debt such as credit cards, loans or finance agreements. Lifetime mortgage schemes are usually aimed at people who are over 55 and own their own homes. You must be 65 or older for a home reversion scheme.

Is there a minimum amount of debt I must owe?

There is no minimum or maximum amount of debt you must owe. However, think carefully about whether you can pay off your debts by using your current income. Releasing equity means you will get a large lump sum but it is also a big commitment which means you are in fact, borrowing against your home.

You need to remember that the loan you take out will have to be repaid, in most cases from your estate when you die.

Can I use it to pay off my children’s debts?

If this is something you want to do make sure you have researched the rules around gifting money and how it can have inheritance tax (IHT) implications.

If you are giving a large amount of money and you die within seven years the money is subject to IHT. This is only the case if the cash gift would have been part of an estate worth over £325,000 at the time of your death.

You will have less equity

If you have released equity it means you own less of your home than you did previously. This will affect the value of your estate when you die and also means you will have less money to pass on as inheritance to your loved ones.

It could affect your benefits

You will need to check if withdrawing a lump sum will affect any means-tested benefits you claim. If this is the case you need to make sure you still have enough money to live on and are not going to spiral into more debt.

Use our Equity Release Calculator to work out how much cash you could release.

It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained advisors.