UK home owners who have paid off their mortgages have an estimated £367 billion locked up in bricks and mortar. If you have capital tied to your property, equity release is a means of unlocking that capital to provide you with a cash lump sum or an income. Equity release schemes can help provide income in later years, but it's important to choose one carefully (consult a financial adviser before making any choices) and be aware of their possible disadvantages.

You may want to finance some home adaptations, buy a new vehicle or take a break. Equally, you might decide you need a new regular source of income to pay for increased caring bills or residential care.

Although equity release schemes have been typically used by the over 60's in the past, an increasing number of younger people release money from their property to pay for children's education and home improvements.

Eligibility for equity release schemes varies. Some providers will not pay out equity release to people who do not completely own their property, insisting that the remainder of their mortgage is paid. Others operate schemes that secure a percentage of the home's value even if there are mortgage payments outstanding.

Equity release is categorised into three areas. The first two - home income plans and mortgages or loans - are where you use your property to raise money but remain the owner. The other is the home reversion scheme. In this case, you sell all or part of your home in exchange for finance but retain the right to live there for the rest of your life.

• Home Income Plans: are used to generate a monthly income. The loan will usually be invested in an annuity-based investment that pays not only your income but also the interest on the loan. It is best to choose a scheme with a fixed interest rate since you can rely on a guaranteed income. It is worth noting that money paid into annuities is lost when you die unless you take out capital protection. Capital protection can refund part of the annuity or reduce the value of the loan if you should die within a set period from the start of the scheme. These plans are normally only available to people over the age of 75.
• Mortgages or loans: using the equity of your home, you borrow a percentage of your home's value from a lender who will provide you with a loan. You will agree an interest rate on the loan that you will repay over a period. The loan will have to be repaid eventually, by your next of kin if you die, or if you sell your property. You can do whatever you wish with your money - invest it for the future, make home adaptations, buy a car etc. In some circumstances you will be offered a roll-up loan. This is where you do not have to repay the interest. Instead, the interest is added onto the loan that you owe. The problem with this type of loan is that it can build up very quickly, the interest payments increasing in line with the amount borrowed so that the overall amount keeps growing.
• Home Reversion Schemes: is where you sell all or part of your home in return for a lump sum, a regular income or both. The money you receive can be invested in annuity-based investment which can provide you with additional income. In return you will be able to live in the house for the rest of your life for a nominal rental fee, about £12 a year. There are a number of drawbacks to this scheme. The first is that the amount of money paid for your property under the scheme is unlikely to be anywhere near its market value. In fact full reversions often offer between a third to a half of its true value. Over and above this, because you no longer own the property, should you move into long-term care, the house can be sold legitimately.

• the right to stay in your property for life


• to provide a cash lump sum or income


• you have the freedom to move house

• Benefits: if you release equity from your home this may affect your benefits. Check which are means tested. For example, Income Support may be affected. Also consider that the income derived from equity release may be liable to tax.
• Your will: using equity from your home means you're using money that would otherwise be inherited by your heirs when you die. If leaving money to children is important to you, look into the implications of this with each scheme before choosing one.

I have paid off the mortgage on my house and want to pay for a stairlift. I can't afford to pay for the lift from my savings.
This is exactly the kind of situation where equity release might be useful. If your savings are unable to pay for the purchase you want to make, you might want to consider unlocking capital with any of the available schemes. If you're wanting to make a big buy - like purchasing a stairlift - you'll want to use a scheme that pays out at least one bulk sum.

My level of disability is increasing and before long I will need full-time care. I don't want to leave my home, but my income is not enough to pay for care.

If you are certain that you wish to remain in your home and need to supplement your regular income, then a home reversion scheme is worth investigating. Although you will be selling your home for well under the market value, you will be assured a regular income to pay for care. You will also be able to live in the property for the rest of your life.

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