Many thousands of pensioners are taking up equity release mortgages without gaining any clear ideas about how much they may end up costing, says a new report.

Equity release mortgages allow homeowners to draw money from their home, and add repayment up until they die or sell the property before they repay the loan.

For pensioners who compare mortgage rate offers on equity release against other forms of lending, the savings may seem obvious.

But for some, the estimates they have been supplied with may balloon to swallow up the entire price of their homes, said market research firm Defaqto.

At issue is the estimation of how long equity mortgage holders may live. Many policies only offer one price estimate, applicable if the holder lives to the average life expectancy.

The policies fail to mention that these prices can increase considerably if homeowners live any longer than estimated.

"At least half of those who take out a mortgage will live longer than the illustrations suggest," author of the report David Black told the Daily Mail.

"We think they should be given a wider range of projections. It is the next generation that will suffer if something goes wrong."

© Adfero Ltd