Equity release with Islamic home finance

What is equity release?

Equity is the difference between what your property is worth and what you still owe on it. It can grow as you make payments and as property values change.

Equity release lets you turn some of that value into funds you can use, while you keep the property. It isn't extra savings: the amount you release is added to the amount financed, and you make payments on it over the term.

How is equity release different from selling your property?

They are very different decisions, and it's worth being clear about which one you're making.

• When you sell, ownership passes to the buyer. Your existing finance is paid out from the sale proceeds, you receive what's left, and the property is no longer yours.
• When you release equity, you keep the property and stay the registered owner. The amount financed goes up, your payments are based on the larger amount, and the financier's registered mortgage covers the larger amount until all payments are made.

Equity release doesn't sell part of your home to anyone. It changes how much you finance, not who owns the property.

How does equity release work with Ijarah home finance when you refinance?

Our Ijaar home finance uses Ijarah Muntahia Bittamleek, a lease that ends in ownership. When you refinance from a conventional home loan and release equity at the same time, the steps usually look like this:

1. You talk to an accredited broker about your current home loan, your property and what you need the funds for.
2. The property is valued to confirm what it's worth today.
3. Your broker applies for finance that covers your existing balance plus the amount you want to release.
4. At settlement, the financier pays out your current lender. The released amount is then paid to you or used for the purpose you declared.
5. You make rental payments on the new amount. As you pay, the amount financed reduces. When all payments are made, the mortgage is discharged and the financier's interest passes to you.

Equity release is available on selected Ijaar home finance, and limits apply. Your broker will confirm what's available to you.

Equity release isn't available through Al-Mustaqbal SMSF, which is for commercial property purchases only.

What can you use released equity for?

Common uses include:

• renovating or improving your home
• bringing existing debts together into one Shariah-compliant facility
• business purposes.

Every request needs a clear purpose. You'll be asked to declare what the funds are for, and depending on the amount, further evidence may be needed.

Equity release isn't bridging finance. Riyadh Financial Services doesn't offer bridging finance on any product.

What does your broker check?

Accredited brokers must make reasonable inquiries about your needs and your financial situation and take reasonable steps to verify it. For equity release, that usually means looking at:

• Your purpose: what the funds are for and whether the amount suits that purpose.
• Your property: its current value and how much you'd finance compared with that value.
• Your budget: your income, living expenses and existing debts, so the payments on the larger amount are affordable without hardship.
• Your credit history: how you've managed your current home loan and other credit.
• Your current home loan: any discharge fee, and any break costs if you're on a fixed rate.
• Your plans: whether the term and the larger amount fit your longer-term goals and stage of life.

Your broker will also explain which of our Ijaar home finance options suit you and confirm the documents you need.

What should you weigh up before releasing equity?

• You'll owe more. A larger amount financed usually means higher payments, or paying for longer, and paying more over the life of the finance.
• There are costs. Refinancing comes with one-off and ongoing costs. Our guide to the costs of refinancing explains what to compare.
• Rental rates can change. If your rental rate is variable, your payments can go up or down.
• Tax depends on your situation. If you plan to use the funds for business or investment, talk to your accountant about how it affects you.

General information only. It doesn't take into account your objectives, financial situation or needs. Fees, charges and credit criteria apply.