There are two main types of equity release plans: lifetime mortgage and home reversion.
With a lifetime mortgage plan, you take out a loan secured on your home.
- You keep full ownership of your home.
- The loan, together with the accumulated interest, is repaid from the sale of your home, either when you die or move into long-term care.
- Reputable schemes guarantee that the repayment will never exceed the value of your property (the 'no negative equity guarantee').
- Alternatively, you could consider an interest-only lifetime mortgage. With these, you repay the interest on the loan and can be safe in the knowledge that the original mortgage balance will remain exactly the same for the lifetime of the mortgage.
- Some providers offer a ‘drawdown’ facility, which means that instead of borrowing all the money you need as a lump sum at the start, you can take smaller cash amounts as you need to.
With a home reversion plan, you sell your home, or part-share of it, to a reversion company.
- You no longer own your home, or you only own a part of it.
- You receive a lease giving you the right to live there rent-free (or sometimes paying a token rent) for your lifetime, or until you have to move into a care home.
- The reversion company will get its pay out when the property is sold after you have left it.
- The reversion company will only pay you a percentage of the current market value of your property because it may have to wait years for its return and you will be living there rent free (or almost) for life.
To understand the features and risks of the two main equity release plans seek advice from a specialist equity release adviser and ask them to give you a personalised illustration. You can seach for an adviser on the Money Advice Service retirement adviser directory, through the Equity Release Council, the Personal Finance Society or www.unbiased.co.uk