PARENTS who want to help their children on to the housing ladder or pay for university fees were offered a new option last week when two lenders made their equity release schemes available to fiftysomethings.

Equity release, where you borrow against the value in your home but do not have to pay anything back until you die, used to be available only to the over 65s, but last week two firms, New Life Mortgages and Prudential, lowered the minimum age to 55.

This brings these deals within reach of parents who want to help youngsters buy a flat or go to university.

In a market of about 20 providers, only Scottish building society has a lower age limit of 50.

Prudential said: “For some parents, equity release could be a way for them to help their children onto the housing ladder, or pay for their university tuition fees. It’s like paying an inheritance while they are still alive. The money could also be used to pay for home improvements.”

The disadvantage with equity release, though, is the interest rolls up and has to be repaid along with the original debt out of your estate when you die. The longer you have the loan, the bigger the debt and the less you can pass on to heirs.

While some parents may see this as the perfect way for their children to repay them, the debt could easily eat up the value of your home.

Suppose your home is worth £500,000 and you release 10% – the maximum allowed by Prudential at 55 – or £50,000. Interest would be charged at 6.49%.

If you lived until 80, the debt would grow to a staggering £240,819 which would have to be repaid out of your estate. If house prices had grown by 4% a year in that time, your property would be worth £1.3m – so your heirs would face having to pay 18% of the property back to the lender.

David Knight, mortgage analyst at Moneyfacts, said: “While releasing equity earlier in life may offer an immediate solution for borrowers needing extra income, it will mean a big boost in the interest charged compared with taking it out at a later stage.”

Most equity release schemes come with a negative equity guarantee to ensure the debt cannot be worth more than the value of the property, but there can be other problems.

It may be difficult to move house later in life as you will have so little equity available to spend on a new place.

Experts therefore say that if you can afford it, you are better off increasing your mortgage in the normal way and making the repayments.

Darren Carter, the managing director of In Retirement Services, a broker, said: “If you are in your fifties, it is wise to explore options other than equity release such as a standard loan or buying a smaller property.”

Prudential has two types of lifetime mortgage – an increasing cash reserve, also known as a drawdown mortgage, where you can take out a small amount at different times, up to a maximum of 35% of the value of the property; or the lump sum version, which offers a one-off payment.

How much you can take out depends on your age, so at 55 you will only be able to withdraw 10% of the value of your property. This will increase by 1% a year, until you reach 35%.

With the lump-sum version, you can take out up to 15% at the age of 55. This increases to 35% if you take the loan out at the age of 75.

You cannot borrow more than 35%. So if you decided to take out a drawdown loan of 10% of your property, you would only be able to take out another 25% at 80. The amount is based on the value of the property when you draw out the initial sum.

The minimum loan for the drawdown plan is £10,000 so your property has to be worth at least £100,000. For the lump-sum option, you have to release at least £20,000.

The interest rates depend on how much you withdraw. With lump sums, a loan of £20,000-£49,000 will be at a rate of 6.69%. For anything above this, the rate is 6.49%.

With the increased cash reserve option, the rate is 6.99% for sums up to £19,999 while anything above this has a rate of 6.49%. The rate is fixed at the time the mortgage is taken out.

On top of a negative equity guarantee, Prudential also offers an additional promise to pay out either 10% or 20% of the value of the property on sale if you accept a slight increase in the interest rate. This ensures that your children will have some inheritance from the property, especially if you live to a ripe old age.

For a 10% guarantee, you have to pay an additional 0.3% for the lump-sum mortgage and 0.2% for the drawdown version. For 20%, it’s 0.5% and 0.3% respectively.

You should also bear in mind the additional costs of the mortgage. You will have to pay a valuation fee, which depends on the value of your property. It ranges from £220 for properties worth up to £175,000, to a fee of £3,570 for a property worth more than £4.5m. Other fees include a £595 arrangement fee. If you go for the drawdown option, you will have to pay £90 each time you withdraw cash.

If you are still working and are willing to make bigger monthly repayments, you may be better off extending your mortgage in the normal way.

Nationwide has a five-year fix at 5.63% with a fee of £499. If you borrowed £50,000 at 55, as above, your monthly repayments would be £311. The cost over the term would be £104,016, but you may not geta 25-year mortgage at 55.