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ⓘ What's in this guide?
- What is equity release?
- What are the benefits and drawbacks of a lifetime mortgage?
- How much does equity release cost?
- What are the equity release set-up costs?
- When do you pay your equity release fees?
- What interest rate do you pay on equity release?
- How does compound interest work?
- How can I reduce my total cost of borrowing?
- How much do I pay back on equity release?
- Am I eligible for equity release?
- Why choose Key?
- How to release equity from your home
Equity release is a way for homeowners aged 55 or over whose property is worth at least £70,000 to release some of the tax-free funds from their home. The two types of equity release are a lifetime mortgage and home reversions. All our equity release advice relates to Key lifetime mortgages only - a loan secured against your home.
*However, it’s important to remember that a lifetime mortgage may leave you with limited or no property equity remaining, and it’ll reduce your financial options in the future.
If you’re considering equity release, there are certain criteria that you must meet to qualify. It’s worth speaking to our team as our expert equity release advisers could help you find the product that’s right for you.
Back to "What's in this guide?"
If you're considering a lifetime mortgage, it's important you understand the product in detail. Here's some useful things to think about.
Lifetime mortgage benefits
Your specialist equity release adviser will explain:
Lifetime mortgage drawbacks
Your equity release adviser will also outline the following important things to think about:
How much does equity release cost?
When considering how much it really costs to release equity, there are two major factors you should bear in mind:
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The costs associated with setting up your equity release plan
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The loan itself, including the initial amount and the interest you accrue
We'll discuss these two factors in greater detail in this guide, as well as ways to manage the overall cost of equity release.
Back to "What's in this guide?"
Just like when you first took out your mortgage, there are services and processes that you’ll need to pay for when you set up an equity release plan.
The set-up costs are separate expenses to the actual loan amount that you need to be aware of. By understanding these fees, you’ll be in a better position to take your application forward. But ultimately, they'll depend on your provider and the product that you select.
When you’re working out the set-up cost of equity release, there are four fees for services that you may need to budget for. Below, we guide you through what these different services involve.
You should be familiar with these as they all form part of the process of taking out a mortgage.
You'll need to cover the cost of a survey, subject to the criteria of your plan. This is a requirement before you take out equity release, and it’s one of the key costs of equity release that you’ll need to pay for.
Independent valuation
The surveyor will value your property and send their report to the lender. If you choose to go ahead with a Key lifetime mortgage, you can be confident of securing a fair valuation of your property for equity release purposes as your property will be valued by an independent RICS-registered surveyor..
Your offer then follows
Following a satisfactory valuation, and considering other factors, such as your age, you’ll be issued with an offer. It's then up to you to decide whether you're happy to go ahead.
An equity release solicitor typically costs around £1,250, although this subject to their criteria. Whatever the final amount, you’ll need to include this as part of the equity release set-up costs.
If you're happy with the offer and want to go ahead, you'll need to instruct a solicitor. We can suggest a panel of expert independent equity release solicitors. They'll take care of all the legal work on your behalf and make sure everything is in order up until your money is released.
You are, of course, free to choose your own solicitor if you wish, but we always suggest that your case is handled by a solicitor who has experience in equity release transactions.
Again, like when taking out a regular mortgage, you may also be charged an "arrangement" or "administration" fee by the lender.
These typically cover set up and legal costs. The lender decides how much they charge, but the cost usually ranges between free of charge to £695, depending on the plan that’s recommended to you.
All our equity release advice relates to Key lifetime mortgages only – a loan secured against your home. Our £1,299 fixed advice fee is only payable on completion, so you can find out if equity release is right for you without it costing you a penny.
You must get expert advice
Before you take out equity release, it's crucial you seek expert equity release advice. It's a regulatory requirement. Your application won’t be accepted without it – and that's where we come in.
If it's not right for you, we'll tell you
Our equity release advice is unique to you and your needs, delivered by qualified experts. We take the time to understand you, ensuring we find and recommend the right solution. If equity release isn’t right for you, we’ll tell you. If it is, and you want to find out more, we’ll search the entire product range we have created to make sure we find the plan that suits your needs.
We're with you every step of the way
You’ll have a dedicated case handler to support you throughout, answering any questions you have and overseeing your application right through to completion.
Whether you want to ask us how much equity release costs, or you need to get an update on your application for equity release, we’re here to help.
ⓘ What's the total cost?
The total average cost of fees when setting up equity release is estimated to be in the region of £2,149. It's also worth noting that not every application will incur the same charges. For example, with some plans, you won’t pay a lender’s application or survey fee. It's important you speak to an expert equity release adviser to find out what you'll pay before you agree to release equity.
Even though the fees above cover the entire process, you may be expected to pay them at different times.
However, depending on how you use the equity you release, there may be tax implications. In some instances, Inheritance Tax might be applicable. Therefore, you should carefully consider the tax implications of equity release before you do anything with it.
As well as the typical fees that you’ll need to cover, it’s important that you’re aware of how much interest you pay with a lifetime mortgage.
There are no interest rates for home reversions, in which the client sells a percentage of their property to a home reversion provider. But with lifetime mortgages, the interest accrues, then rolls up and is added to the loan amount – also known as compound interest. This means the amount you owe can grow quickly.
Your interest rate can be fixed for the life of the loan and will be specific to your circumstances, considering factors such as your home, finances and age.
Representative example
All rates correct as of 10th November 2024. This is based on customer data from the last 60 days, apart from Key's lowest rate. Interest rate received and plan features are subject to eligibility. Ask for a personal illustration.
Interest rates explained
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AER stands for Annual Equivalent Rate. It shows what the interest rate would be if the interest was compounded each year.
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APR stands for Annual Percentage Rate. It's the cost you pay each year to borrow money, including fees, expressed as a percentage.
Our equity release calculator will give you an idea of how much you could release. Your equity release adviser will be able to give you more information on interest rates.
There are no repayments to make on a lifetime mortgage until the plan comes to an end, unless you choose to make them. As a result, you pay interest not only on the loan itself, but also on the interest that’s already been added to the loan. But there are ways you could reduce the total cost of borrowing on your lifetime mortgage which we outline later in this guide.
Whether interest is added to your lifetime mortgage on a monthly or annual basis is dependent on your plan. But during that first period, the interest is charged and added to the original loan amount - the sum of tax-free cash you unlock from your home’s value.
An example of how compound interest accrues over 15 years
| Year | Balance at start of year | Interest (6.3% MER)¹ | Balance at end of year² | Remaining property equity³ |
|---|---|---|---|---|
| Year 1 | £81,703 | 6.74% | £87,384 | |
| Year 2 | £87,384 | 6.74% | £93,459 | |
| Year 3 | £93,459 | 6.74% | £99,956 | |
| Year 15⁴ | £209,360 | 6.74% | £223,915 |
Initial release amount of £81,703. Plan subject to a fixed interest rate of 6.74% MER (Monthly Equivalent Rate).
¹ With all Key lifetime mortgages, the interest rate is fixed throughout the life of the plan
² Interest is charged on balance as at the start of the year, not the original amount
³ The balance at the end of the year including compound interest
⁴ This cycle continues throughout the life of the plan
- Key Market Monitor Q1 2023
¹ With all Key lifetime mortgages, the interest rate is fixed throughout the life of the plan
² Interest is charged on balance as at the start of the year, not the original amount
³ The balance at the end of the year including compound interest
⁴ This cycle continues throughout the life of the plan
- Key Market Monitor Q1 2023
All of Key’s lifetime mortgage plans come with features which could help to reduce the total cost of the borrowing if that’s important to you. For example, if you wish to leave a larger inheritance to your loved ones.
How making repayments can help you manage your total cost of borrowing
There are typically no monthly repayments to make with a lifetime mortgage as the loan, plus compound interest, is typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care. All our plans come with the option to make ad-hoc or regular repayments to help reduce your total cost of borrowing.
Even if you’re only able to make small repayments, it will help reduce the amount of interest you pay over the lifetime of your loan.
ⓘ Illustrative example
In this example, if you were to borrow £81,703, with a fixed 6.74% MER interest rate, and make no repayments at all, after 15 years, your total cost of borrowing would be £223,915. However, by making a monthly £250 repayment, after 15 years, you’d owe £146,440 - with a total cost of borrowing, including repayments, of £191,440. This means, by repaying £250 a month, you, and your beneficiaries, could benefit from a £32,475 net interest saving.
This example is for illustrative purposes only and uses the average release amount of £81,703 and monthly equivalent rate of 6.74%
Remortgage to another equity release plan in the future
If interest rates reduce in the future, you may have the option to remortgage your current plan to secure a lower rate.
Consider a drawdown plan
With a drawdown lifetime mortgage, you only take out the money you need when you need it. This can help reduce your total cost of borrowing, as interest is only charged on the money you release, rather than the full amount available. The interest rate on each drawdown will be at the prevailing rate at the time and could be higher or lower than the interest rate on your initial loan. A drawdown facility is not guaranteed as the lender has the right to withdraw it.
More on lump sum vs drawdown lifetime mortgage
How much do I pay back on equity release?
There are no mandatory repayments for a lifetime mortgage. Instead, the loan, plus compound interest, is typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care.
You only make repayments if you want to. Key lifetime mortgages allow you to make repayments of up to 10-12% each year with no early repayment charges to help reduce the amount owed.
We always recommend you make early repayments if you're able to, as it's one of the main ways you can reduce the total cost of releasing equity. We'll discuss each option in more detail in the following sections.
Back to "What's in this guide?"
If you're thinking about releasing equity from your home, it's important to find out if you could be eligible.
You can check your eligibility and get an estimate of how much you could release by using our free online calculator.
To take out a lifetime mortgage with Key, you must be a UK homeowner:
- Aged 55+ (including all joint applicants)
- With a property worth £70,000+
ⓘ Did you know...
If you're not eligible now, why not try our later life mortgage finder? It may be that we can still help you take control of your later life finances.
It's a regulatory requirement for anyone considering equity release to get specialist advice before taking out a lifetime mortgage. So why should you choose Key as your equity release company?
We're regulated experts
Key is regulated and a proud member of the Equity Release Council
Trusted award-winners
We've won 80+ awards and 17,000+ excellent Trustpilot reviews, making us the UK's most trusted equity-release specialist
Customer stories
ⓘ Did you know...
Over the years, more than a million customers have benefitted from our expert advice, experience and professionalism. We've been rated 'Excellent' on Trustpilot and you can check out the great things our customers have to say about our equity release plans.
John's story
69, Retired
“I sat down with the adviser and he went through every single detail and concerns, plus a lot more which I didn’t know about. They took care of everything… it’s so uncomplicated… the process is so easy.”
Read more on John's experienceWatch more of our customer stories
Back to "What's in this guide?"
Things to consider
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The loan, plus compound interest, is typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care
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£1,299 advice fee only payable on completion
ⓘ If another product is more suitable, we'll refer you to a different adviser within Key Group who can help. If you go ahead, you'll only be charged the same £1,299 advice fee you'd pay with us, even if their fee is usually higher.
Page last updated: Wednesday 11 September 2024