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.
- 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.
With a home reversion plan, you sell your home, or part 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 equity release seek advice from a suitably qualified independent financial adviser and an independent legal adviser.