What Are The Different Types Of Equity Release?
There are many types of equity release, each with distinct features. This guide explains the differences so you can make an informed decision.
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What is a lifetime mortgage and what types are there?
Types of equity release lifetime mortgages
Equity release is a way of accessing some of the cash tied up in your home - the 'equity'.
There are two different types of equity release:
Type 1) A home reversion plan
A home reversion plan is where you raise money by selling part or all of your home, continuing to live in it until you die or move into permanent residential care. Although you no longer own all your home, you can continue to live there rent-free until you die or move into permanent care. Most home reversion plans start from age 60. The tax-free cash you receive can be a way to supplement your retirement income or to help pay for one-off large expenses such as house repairs. You do not make repayments as a home reversion plan is not a loan. The plan ends when you die or go into permanent long-term care.
Type 2) A lifetime mortgage
A lifetime mortgage is probably the most common type of equity release. Put simply, it's a long-term loan secured on the value of your home, which is repaid when you die or move permanently into long-term care, usually by selling your home. For a lifetime mortgage, you must be at least 55 years old.
Both types of equity release allow eligible homeowners to access some of the cash tied up in the value of their home while continuing to live in it until they die or move permanently into long-term care.
It's important to get advice from a specialist before deciding which type of equity release scheme would be best for you.
Read more on the pros and cons of equity release and what you should consider before choosing a lifetime mortgage or home reversion plan.
What is a lifetime mortgage and what types are there?
A lifetime mortgage is the most popular type of equity release. There are many different types of lifetime mortgage to choose from depending on your individual circumstances.
Types of equity release lifetime mortgages
Lump sum lifetime mortgage - often referred to as a roll-up lifetime mortgage, this releases cash in one single payment. The interest is added to the loan on either a monthly or yearly basis and repaid from the sale of your property once you have died or moved into permanent care.
Drawdown lifetime mortgage - you release equity as and when you want, rather than in a single payment. So you can take an initial lump sum leaving the rest in reserve until you need it and you only pay interest on the money you draw down, not the money held in reserve.
Interest only lifetime mortgage - with this type of equity release, you pay some or all the interest on a monthly basis, therefore reducing the size of your loan. Some interest only equity release mortgages require regular payments while others are flexible, meaning you can repay the interest as and when you choose.
Protected lifetime mortgage - you protect a percentage of the value of your property, which means you can guarantee an inheritance for your family. However, protecting some of your property value this way will reduce the amount of equity you can release.
Enhanced lifetime mortgage - this type of lifetime mortgage is designed for people with medical conditions and shorter life expectancy and is sometimes known as an impaired lifetime mortgage. You can usually release more equity with this type of scheme and the interest rates can be lower as the risk to the lender isn’t as great.
Both home reversion plans and lifetime mortgages are regulated by the Financial Conduct Authority.
How to Choose the Right Type of Equity Release
Choosing between the different types of equity release depends on your financial goals, your age and how much flexibility you want in retirement.
For most homeowners, a lifetime mortgage is the preferred option because you continue to own your home while releasing tax-free cash. Modern lifetime mortgages also offer features such as drawdown facilities, optional repayments and inheritance protection, making them far more flexible than many people realise.
Home reversion plans work differently. Instead of borrowing against your home, you sell part or all of your property to a home reversion provider in exchange for a tax-free lump sum while retaining the right to live there for the rest of your life. Although this option suits some homeowners, it has become much less common than lifetime mortgages.
When comparing equity release products, it's important to look beyond the amount you can borrow. Consider factors such as the interest rate, repayment flexibility, early repayment charges, downsizing protection and whether you want to protect part of your home's value for your beneficiaries.
A qualified equity release adviser will compare products from multiple lenders and explain which type of plan best matches your circumstances before making a recommendation.
Comparison Table
Feature | Lifetime Mortgage | Home Reversion Plan |
Own your home | ✔ Yes | Partial or full ownership sold |
Monthly repayments required | Optional on selected plans | No |
Interest charged | Yes | No interest charged |
Receive tax-free cash | ✔ Yes | ✔ Yes |
Leave an inheritance | Usually easier | Depends on the share sold |
Most common option | ✔ Yes | Less common |
How much cash could you release?
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Next steps
To see how much equity you could release from your home, use our free and easy-to-use calculator.
Or for free advice from an equity release specialist Age Partnership, call 0800 368 8466.
Lifetime mortgages are by far the most common form of equity release in the UK. They allow homeowners to retain ownership of their property while accessing tax-free cash, with many modern plans offering flexible repayment options.
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