What is equity release, and what does it actually cost?
Borrowing against the value of your home without moving, with nothing repaid until you die or move into long-term care — and the cost is dominated by compounding interest over a very long period, which is what makes the arithmetic so different from an ordinary mortgage.
The two forms:
Lifetime mortgage, by far the most common. A loan secured on the home. You keep ownership. Interest rolls up — added to the balance rather than paid — and the whole amount is repaid from the sale of the property at the end.
Home reversion, where you sell a share of the property to a provider for substantially less than its market value, and they take that share of the proceeds at the end. Much less common.
Why the cost compounds so dramatically. With interest added to a balance that is never reduced, the debt grows exponentially. A balance can roughly double over a period determined by the rate, so a loan taken in early retirement may have multiplied several times over by the end. This is not a hidden cost — it is disclosed — but the scale over twenty or thirty years is consistently underestimated.
The protections that now apply. Products meeting industry standards must include a no negative equity guarantee, so the debt can never exceed the sale proceeds and cannot pass to your estate or family. Advice is mandatory before taking a plan, and there is a right to remain in the property for life.
Modern flexibility includes optional interest payments, voluntary partial repayments within limits, drawdown facilities so interest only accrues on what you take, and inheritance protection guaranteeing a percentage.
What it genuinely costs beyond interest: arrangement, valuation, advice and legal fees, and early repayment charges which can be very large and are the most common source of regret.
What to consider first: downsizing, a retirement interest-only mortgage, checking benefit entitlements — since released capital can affect means-tested benefits — and discussing it with family, because it directly reduces what they inherit.
General information, not financial advice.