All of our content is approved by our in-house expert advisory panel.
The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.
If you're looking to access a lump sum of money and you own your home, you may be weighing up whether equity release or a personal loan is right for you. Both options have their merits, but they work in very different ways, and the right choice depends entirely on your personal circumstances.
This guide explains how each option works, compares them across the factors that matter most, and helps you understand what to consider before speaking to a financial adviser.
What is equity release?
Equity release is a financial product that lets homeowners, typically aged 55 or over, access the value tied up in their property without having to sell up or move out. It's designed for people who have built up equity over the years but need access to cash.
There are different types of equity release, the most common being a lifetime mortgage. You borrow money secured against your home and continue to own it.
Interest is usually rolled up and added to the loan over time, known as compound interest. This means there are no mandatory monthly repayments, though some products allow you to make optional repayments if you'd prefer to manage the interest.
The loan, along with any rolled-up interest, is repaid when you pass away or move into long-term care, typically funded through the sale of your home.
Usually, a lifetime mortgage comes with the backing of the Equity Release Council’s No Negative Equity Guarantee, meaning you won’t owe more than the value of your home, no matter how much interest has accumulated.
Money released through equity release is generally tax-free and can be used for a range of purposes, from home improvements and supporting family members to supplementing your retirement income.
Home reversion plans
The other type of equity release is a home reversion plan, where you sell a share or all of your property to a provider in return for a lump sum or regular payments, while keeping the right to live there.
At LV=, we don’t currently offer advice on home reversion plans.
What is a personal loan?
A personal loan is an unsecured form of borrowing and is not tied to your home or any other asset. You borrow a fixed amount from a lender and repay it in monthly instalments over an agreed term, usually between one and seven years.
Eligibility is based on your credit history, income and overall financial situation. Interest is either fixed or variable and is applied to the outstanding balance over the repayment term.
Personal loans are available to a wide range of borrowers, though lenders may apply upper age limits or income requirements that can make them harder to access in later life, particularly for those in retirement with a reduced income.
Because personal loans are unsecured, they don't put your home at direct risk. However, missed repayments can damage your credit rating and affect your financial position.
Equity release vs personal loan: Key differences
Here's a straightforward comparison across the factors that may influence your decision. Every situation is different, so use this as a starting point rather than a definitive answer.
Eligibility
To qualify for equity release in the UK, you generally need to be aged 55 or over and own a property valued at £70,000 or more. Any outstanding mortgage in your name will also be considered.
Personal loans are open to a wider age range, but lenders assess income, credit history and affordability carefully. Upper age limits may apply, particularly for longer loan terms. For those who are retired or have a reduced income, meeting personal loan eligibility criteria can be more difficult.
Need help with equity release?
Releasing equity from your home isn’t an easy decision. For a free and impartial chat, speak to one of our friendly advisers.
You can also order a free equity release brochure.
How much you can borrow
With equity release, the amount you can release is based on your age and the value of your home. In general, the older you are, the higher the percentage you can release.
Personal loans typically allow you to borrow up to around £25,000, though this varies by lender. Equity release can potentially give you access to significantly larger sums, particularly if you own a higher-value property.
Use our equity release calculator to quickly estimate how much tax-free cash you could release from your home.
Repayments
Personal loans require fixed monthly repayments throughout the loan term. Missed payments can affect your credit rating and your ability to borrow in the future.
With a lifetime mortgage, there are no mandatory monthly repayments. Interest rolls up over time and is repaid, along with the loan amount, when you pass away or move into long term care.
Some lifetime mortgage products give you the option to make voluntary repayments if you'd like to reduce the interest that builds up.
Interest rates and overall cost
Personal loan interest rates can be competitive, especially for shorter terms. Because the loan is repaid over a fixed period, the total cost is more predictable and easier to plan for.
Lifetime mortgage interest rates tend to be higher than standard mortgage rates. Because interest compounds over time, the total amount owed can grow significantly, particularly if the loan runs for many years. This is one of the most important factors to understand before considering equity release particularly if the loan runs for many years. This is one of the most important factors to understand before considering equity release.
For those who can comfortably afford monthly repayments, a personal loan may result in lower overall borrowing costs.
Impact on your home and inheritance
A personal loan is unsecured, so it doesn't affect your property directly. However, large debts can still have an impact on your estate.
Equity release is secured against your home. As interest rolls up, the equity remaining in your property reduces over time, which may mean less to pass on to your beneficiaries. As there are no mandatory repayments, there is not the same risk of repossession as with a standard mortgage. However, in rare circumstances if you breach your terms and conditions, your home could be repossessed.
The Equity Release Council’s No Negative Equity Guarantee means you won’t owe more than your home is worth. It's also worth discussing the potential impact on inheritance with a financial adviser, and where appropriate, with your family.
Impact on means-tested benefits
Releasing a lump sum through equity release could affect your entitlement to means-tested benefits such as Pension Credit. How a personal loan affects your benefits will depend on how the money is used.
Either way, it's important to take financial advice to understand what impact either option could have on any benefits you currently receive.
When might equity release be worth considering?
Equity release could be worth exploring if you're aged 55 or over, own your home, and want to access cash without taking on monthly repayments. It might be relevant if you want to:
- Supplement your retirement income.
- Fund home improvements or adaptations.
- Support family members financially.
- Cover unexpected costs or clear existing debts.
It may also be an option for those who don't qualify for a personal loan due to age or income restrictions.
Equity release isn't right for everyone. It carries long-term financial implications, which is why speaking to a qualified financial adviser before making any decisions is essential. They’ll help you understand your options clearly and confidently.
When might a personal loan be worth considering?
A personal loan could be a more suitable option if:
- You have a regular income and can comfortably afford fixed monthly repayments.
- You need to borrow a smaller amount over a shorter term.
- You want to keep your home free from any secured charge.
- You're younger and don't yet meet the age eligibility for equity release.
- Protecting the equity in your home and preserving your inheritance are priorities.
Because personal loans are unsecured, they don't put your property at direct risk in the same way equity release does. For the right person, in the right circumstances, a personal loan can be a straightforward and cost-effective way to borrow.
A financial adviser can help you assess whether your income and credit profile make a personal loan a realistic option.
Equity release: Things to consider
There are pros and cons to equity release. Here's a balanced summary to help you think it through and give you the full picture.
| Benefits | Considerations |
| Access a tax-free lump sum or drawdown facility without selling your home. |
Interest compounds over time, which can significantly reduce the equity left in your property. |
| No mandatory monthly repayments with a lifetime mortgage. |
It may affect your eligibility for means-tested state benefits. |
| The no negative equity guarantee means you won’t owe more than your home is worth. |
Early repayment charges may apply if you want to repay the loan ahead of time. |
| Flexibility as some products allow optional repayments to help manage interest build up. |
It will reduce the value of the estate you leave behind. |
| Funds can be used for almost any purpose. |
It's a long-term financial commitment and not easily reversed. |
Equity release or personal loan: Why financial advice matters
Choosing between equity release and a personal loan is an important decision with long-term implications for your finances, home and estate. A qualified financial adviser can help you understand your options, costs and future impact, so you can make an informed choice.
Equity release is regulated in the UK, and financial advice is required before taking out a lifetime mortgage. LV= offers specialist equity release advice to help you explore your options without pressure.
Browse our equity release guides to learn more. It’s also worth discussing your plans with family, as equity release can affect the inheritance you leave behind.
Ready to explore your options?
If you're stuck between a choice of equity release or personal loan, or just starting to think things through, LV= is here to help. Speak to a specialist adviser through our equity release advice service or request a call back today.
There's no obligation, just clear, straightforward guidance to help you make the right decision for your circumstances.
Insurance
Life, Investments, Pensions and Retirement
Company
Contact us
