The Choices of Equity Release

There are 2 main types of Equity Release scheme available.

Lifetime Mortgage

This involves taking out a loan that is secured on your home. Normally there are no repayments to be made and the cash is tax free. You continue to own your property and could benefit from any future increase in value. You can never end up owing more than the value of your home.

You are charged a rate of interest that is usually higher than for a normal mortgage to buy a property and the interest you owe is rolled up and added to the loan at the end of each year. However, there are schemes which allow you to make interest payments in order to ensure the amount of the loan does not increase.

You may be able to receive the money in stages rather than all at once, called a
“Drawdown” and this means you would not be charged interest on the money until you need it.

When the property is eventually sold, perhaps you have needed to move into a residential home or on your death, the amount of loan is deducted from the sale proceeds and whatever value is left can be passed to your beneficiaries.

It is available to individuals or couples normally with a minimum age of 55. If you decide to repay the loan early, there may be a fee payable.

Home Reversion

This does not involve any loan. Instead you are immediately selling either part or all of your property, but retain the right to live there for the rest of your life (known as a lifetime lease).

You will no longer have title over all (or any) your property and the price you sell it for is likely to be less than the current market value.

You can generally release higher amounts of cash than by using a lifetime mortgage, but you will lose any growth in house price of the part you have sold. They are normally available to those where the youngest is aged between 65 and 80.

These plans should not be confused with the unregulated “buy and rent back plans” that appear in the media stories.

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