There are many equity release plans available in the market offered by reputable equity release providers.
They can be broken down into 3 main types:
•Lifetime Mortgages
•Drawdown Plans
•Home Reversion Plans
Each of the above is simply a different method of releasing the equity locked up in your home.
There are also other useful features available;
Some of these features include;
Protected equity - All equity release plans that we recommend come
with a no-negative equity guarantee, however some plans allow you to
go further and protect a fixed share of the value of your home.
For example, if you protected a 20% share in your home, you have a
guarantee that a minimum of 20% of your property value is protected for
you or as inheritance for your beneficiaries in the future.
Impaired Life – Some providers will allow you to release more capital
if you suffer from one of a list of health conditions.
Flexible Drawdown – New plans are available with a pre-agreed
‘cash reserve’. Similar to an overdraft, it is a facility that allows you to
draw-down cash whenever you wish, if you wish to. Ideal for boosting
income when required or for ad hoc purchases when they’re needed
such as a new car, replacement boiler and so on.
As interest is only added to the amount drawn out, they can work out
much cheaper than other types of plans, depending on your needs.
A lifetime mortgage is a form of equity release where a loan is secured
against your property to provide you with a tax free cash lump sum or a regular
income to spend as you wish, with no monthly repayments to meet.
Interest is added to the lifetime mortgage loan throughout your lifetime, accruing
at a fixed or variable rate. The loan plus interest is eventually paid back when the
home is sold, usually when you move into long term care, or when you and your
partner die.
You can typically release between 20-56% of the value of your home
with a lifetime mortgage, depending on your age. The minimum age is 55.
Advantages of a lifetime mortgage
A lifetime mortgage gives you the choice of a cash lump sum or income with no monthly repayments to meet
You retain full ownership of your home
No negative equity guarantee
Some lifetime mortgage plans let you guarantee an inheritance for your family
All equity release plans are regulated by the Financial Services Authority
Disadvantages of a lifetime mortgage
The amount you leave as an inheritance will be reduced
The interest applied can grow quickly as it is compounded.
You can't usually raise as much money with a lifetime mortgage as you could with a reversion plan, especially at younger ages
If you repay the lifetime mortgage early, you may have to pay an early repayment charge.
A drawdown lifetime mortgage has the same advantages and disadvantages as a
regular lifetime mortgage, as well as a few more that are unique to this kind of
equity release plan.
The main difference with a drawdown plan is that you don't request the full sum of
money available to you immediately. Instead, you decide on a maximum amount of
equity you want to release, and 'drawdown' the cash in stages when and if you
want to.
Advantages of a drawdown lifetime mortgage
You can drawdown cash by making withdrawals as and when you need it.
You only pay interest on the amount of equity released, so interest could accumulate more slowly than with a regular lifetime mortgage.
You are in control of your money as you can release cash when it suits you
You retain full ownership of your home
Some drawdown plans let you guarantee an inheritance for your family
All equity release schemes are regulated by the Financial Services Authority, including drawdown plans
Disadvantages of a drawdown lifetime mortgage
Interest rates are usually higher on a drawdown plan than they are on a standard lifetime mortgage
There are restrictions on the minimum amount you can release
The amount you can leave as an inheritance will be reduced
The interest applied to the drawdown mortgage can grow quickly as it is compounded.
You can't usually raise as much money through equity release with a drawdown lifetime mortgage as you could with a reversion plan, especially at younger ages
If you repay the lifetime mortgage loan early, you may have to pay an early repayment charge.
With a home reversion plan you sell part or all of your home to a reversion plan
company in exchange for a tax-free cash lump sum. You also gain a guaranteed
lifetime lease with no monthly repayments to meet.
You stay in your home rent free for as long as you choose and are able to
guarantee an inheritance to your beneficiaries. Both you and the
reversion scheme company share in any increase in your property's value,
providing you have not exchanged 100% of its value.
This is a Lifetime Mortgage. These are only applicable to those 55 and over, and it could affect eligibility to state means-tested benefits and the inheritance you may leave. To understand the features and risks, ask for a personalised illustration.
