Pulling cash out of your home can feel like you’re finally getting paid for all those years of mortgage payments. But what really happens to your mortgage when you release equity? Spoiler: it’s not just a simple bank transfer. The process can wipe out, change, or stack up with what you already owe, depending on the route you pick and your lender’s rules.

If you still have a mortgage, the equity release company will usually want that gone first, meaning they’ll pay off what you owe out of your home’s value, and you get what’s left. But if you’re thinking you can keep your old mortgage and just pocket the extra cash, that’s not usually on the cards unless you remortgage or take a secured loan, and even then, the fine print matters—a lot.

Some homeowners are surprised by all the legal checks and lender rules. You’ll likely need permission from your current mortgage provider, and if you release equity via a lifetime mortgage, you can kiss your old repayments goodbye (but interest starts creeping up on the new loan instantly). Each option changes your rights and what you’ll leave behind one day, so picking the best deal is less about today’s headline rate and more about what you want from your home in five, ten, or twenty years.

• What Is Equity Release Anyway?
• Types of Equity Release and How They Work
• Your Current Mortgage: Cleared or Changed?
• Fees, Risks, and Red Flags
• Common Misconceptions (And What to Ask)
• Tips Before You Take the Leap

What Is Equity Release Anyway?

If you’re a UK homeowner over 55, you can use equity release to turn some of your home’s value into cash—without moving out. This cash isn’t free money, though. It’s a loan, and your house stands as security for it. There are two main products: lifetime mortgages and home reversion plans. Lifetime mortgages are the most common: you borrow against your home but keep ownership, and the loan plus interest is repaid when you die or go into long-term care. Home reversion, on the other hand, means you sell part or all of your home to a provider for a lump sum or regular payments, but you can stay in the property until you pass away or move into care.

Equity release has become pretty popular. More than 93,000 people in the UK did it in 2023 alone, pulling out over £5.5 billion according to the Equity Release Council. People usually use this money for home improvements, paying off debt, or helping family with big costs like university fees or home deposits. The cash you unlock depends on how much your home is worth and how old you are—the older you are, the more you can usually get.

If you use equity release, you don’t have to make payments unless you choose a plan that lets you. Most people let the interest build up, which means your debt can grow quickly (this is compounding interest at work). It’s not a magic solution, so always weigh the long-term effects on your family and the value you’ll leave behind. Get advice before jumping in—regulators like the Financial Conduct Authority (FCA) strongly recommend it for a reason.

Types of Equity Release and How They Work

When people talk about releasing equity from their homes, they're usually thinking of two main ways: lifetime mortgages and home reversion plans. Both have important differences in how you get your cash and what happens to your home down the road.

First up, the lifetime mortgage. This is the option most folks choose in the UK. Here, you borrow money against your home, but you don’t have to make monthly payments if you don’t want to. Interest rolls up and is paid off, along with the loan, when you move into long-term care or pass away. One big advantage is you still own your home. The cash you can release usually ranges from 20% to 60% of your property value, depending on your age and health. The older you are, the more you can typically release. In 2024, the average interest rate for this type was around 6.2%—much higher than a regular remortgage.

Then there's the home reversion plan. With this, you actually sell a chunk (or all) of your home to a company in exchange for a lump sum or regular payments. You don’t pay interest, but you might get less than market value. The company owns the share it buys and gets its cut when your house is eventually sold. With this option, you’re a part-owner, not a full one anymore.

• Lifetime mortgage: Borrow against your property, keep ownership, no monthly repayments required.
• Home reversion: Sell a share of your home below market value, often 20-60%, lose some ownership.

Some folks combine equity release with remortgaging or secured loans if they’re under 55, but those aren’t usually called equity release products by banks—they’re just ways to borrow against your home.

Here’s a quick table showing the main differences:

Most people use a lifetime mortgage because there’s no need to give up ownership. But either way, the type you pick shapes what rights you have in your home and what you’ll leave behind for family like Rory and Lila someday.

Your Current Mortgage: Cleared or Changed?

This is the part most folks get tripped up on with equity release: what happens to your old mortgage. Here’s the blunt truth—if you still owe money on your home when you release equity, the new lender almost always uses some of the cash to clear what’s left on that mortgage first. Only the leftover money (after the mortgage and all fees) lands in your bank account for you to spend.

For example, say you’ve got £100,000 left on your mortgage, and you manage to release £170,000 using a lifetime mortgage. The lender pays £100,000 to your old mortgage lender, wiping the slate clean, then sends you the rest (minus fees and charges, which can add up). At that point, your old mortgage disappears, and the equity release scheme takes its place against your home.

• If you go for a lifetime mortgage, you won’t have to make regular monthly payments (unless you choose to). The loan, plus all that rolled-up interest, gets paid off only when you pass away or move into long-term care—the house may need to be sold then.
• If you go for a home reversion plan, you’re selling part (or sometimes all) of your home to the provider for a lump sum or regular income. Your mortgage is paid off first, then the company owns a share of your place.
• If you don’t have a mortgage, every penny you release is yours (again, minus fees). But most people still owe something when they start thinking about equity release.

Remortgaging is slightly different. Here, you might take out a new loan (sometimes bigger than what you owe) to pay off your old mortgage, then pocket the difference. You’ll need to prove you can afford repayments—unlike lifetime mortgages, which aren’t based on income.

There’s one more catch: most equity release lenders won’t even approve your application unless your existing mortgage is cleared as part of the process. Make sure you know your outstanding balance and check for any early repayment charges. Sometimes, paying off your mortgage early can cost thousands, so don’t skip this step.

Quick tip from the trenches—check if your current mortgage has any portable features (meaning you could transfer it if you move) before you sign up for equity release. Some families lose important protections or low rates this way, and you can’t turn the clock back.

Fees, Risks, and Red Flags

Let’s talk about what stings most people the hardest: fees and costs. Most equity release deals hit you up for more than just interest. Expect setup fees, advice charges, property valuations, and legal costs to pile up. Each lender has their own price list, so don’t just glance at the interest rate.

If we break it down, here are typical charges you’re likely to see:

• Valuation fee: Usually around £150 – £500, depending on your property.
• Arrangement fee: Anywhere from £500 to £2,000, sometimes higher for more complex cases.
• Legal fees: Set aside £800 to £1,500 for your own solicitor plus any extras.
• Advisor charges: Most regulated advisers charge a fixed fee (£500-£1,500) or a percentage.
• Early repayment charges: If you want out early, some deals sting you with a penalty worth thousands.

Here’s a quick look at typical fee ranges in the UK:

A big risk with equity release is the compounding interest, especially with lifetime mortgages. Let’s say you take out a £50,000 lump sum at a 6% interest rate. If you make no repayments, that debt can double in just 12 years. Not as fun as it sounds. And yes, this eats into what you leave for your kids.

There’s also a risk you could lose out on means-tested benefits or council support. Once you have a chunk of cash in your account, you might no longer qualify for some help. Lenders have to check this, but it’s on you to double-check before signing.

Red flags to watch out for:

• Lenders not explaining what happens with your mortgage or inheritance.
• No clear "no-negative equity guarantee" (that means you or your kids could owe more than the house is worth if things go wrong).
• Early repayment charges sneaking up on you if your situation changes—like needing to sell quickly for care home costs.
• Loans that don’t let you repay some or all interest, which can trap you in spiraling debt.

Always compare what’s on offer, and ask for all costs up front. Equity release isn’t just another loan—it comes with more rules, and some can bite you later if you aren’t prepared.

Common Misconceptions (And What to Ask)

Loads of people get the wrong idea about how equity release works with their mortgage. Some think it's just free cash with no strings, others assume it's a last resort for those in trouble. The truth falls somewhere in the middle, but getting caught out by a bad assumption can cost you big time.

• “I can keep my mortgage and just add on the equity release.” Nope, doesn't work like that with lifetime mortgages or home reversion plans. Your current mortgage will almost always need to get paid off first.
• “I'm just borrowing against my home's value, so my kids will still inherit the full property.” Not always. Unless you make repayments, the interest on a lifetime mortgage grows fast. That can eat up your estate quicker than you’d expect.
• “It's the same as remortgaging.” It’s not. Remortgaging is switching lenders or deals while still repaying what you owe monthly. Equity release is usually for older homeowners, with no monthly repayments required—interest rolls up until you die or go into care.
• “All lenders follow the same rules.” Rules change wildly between providers. There’s no one-size-fits-all, so double-check every offer.

If you’re feeling confused, you’re not alone. Here are the top questions to ask your advisor or lender before you sign anything:

• Will my whole mortgage be paid off, or will I be left with a balance?
• How does the interest stack up over 5, 10, or 20 years?
• Are there any hidden setup or exit fees?
• Does this plan guarantee I (or my partner) can stay in the house for life?
• How much inheritance, if any, could my kids get under this deal?
• Are there penalties if I decide to repay early?

Let’s look at what happens to inheritance and loan balances as time goes on. This table shows how a £50,000 lifetime mortgage at 6.5% interest compounds over time, if you don’t make any repayments:

That compounding interest is no joke. Your original debt can nearly quadruple in two decades if you don’t touch it. That’s why asking sharp questions and looking past the sales pitch matters a lot more than chasing a quick payout. Your mortgage, your home, and what you leave behind are all on the table.

Tips Before You Take the Leap

Before you dive into equity release, you’ve got to be clear-eyed about what’s actually at stake. These aren’t small numbers or easy do-overs. Here’s what matters most when you start thinking about getting cash out of your place.

• Equity release can eat into what you leave for kids or grandkids. It’s not just you borrowing against your house—compound interest racks up over time. According to the Equity Release Council, the average interest rate for lifetime mortgages sits around 7% as of 2025, and rates can change fast if markets go wild.
• Ask if your current mortgage comes with early repayment charges. Some lenders hit you with fees around 1-5% of what’s left on your loan if you pay it off with equity release money before your term is up. That’ll slice into the cash you actually get.
• Shop around, not just for rate but for flexibility. Some plans lock you in long-term or make it really expensive to move or repay early. Look for features like voluntary repayments or the ability to move house without triggering sky-high charges.
• Check if the lender or broker is part of the Equity Release Council. This means they have to offer no negative equity guarantees—vital if home values dip.
• Get your family involved. If you have adult kids or someone who’ll inherit, make sure they know what equity release means for your home’s future. More than half of people who regretted equity release decisions in a UK survey said family trouble was a big reason why.
• Talk to an independent adviser. Free advice is out there, but always ask if your adviser gets commission for recommending certain deals. That can slant what’s being presented as “best.”

To give you an idea of how much releasing equity can cost, here’s a quick breakdown of typical fees you might face in the UK:

Finally, do a little “what if” homework. Run different scenarios: what if you live longer than you expect, need to pay for care, or want to move closer to family? The right time to ask questions is before you sign anything. Rushing in usually means regrets later—and nobody wants surprise debt or family headaches down the road.