What are the different types of equity release?


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equity release schemes

There are two different types of equity release, a home reversion plan and a lifetime mortgage. Both allow homeowners to release cash tied up in the value of their home.

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.

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.

What is a home reversion plan and how do they work?

A home reversion plan is a type of equity release that lets you take some of the equity out of your home by selling all or part it, usually for less than the market value. 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.

With this type of equity release scheme, you will still be responsible for the upkeep of the whole property however you will only benefit from any rise in house prices on the percentage of property you own.

Once the property is sold, your home reversion plan lender will receive their share of the proceeds based on the percentage of property they own. The remaining balance will be paid to your beneficiaries.

Read more on the pros and cons of equity release and the things 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

  1. Lump sum lifetime mortgage - A lump sum lifetime mortgage, often referred to as a roll-up lifetime mortgage releases cash in one single payment. The interested 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.
  2. Drawdown lifetime mortgage - Drawdown lifetime mortgages let you release equity as and when you want, rather than 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 drawdown, not the money held in reserve.
  3. Interest only lifetime mortgage - Interest only lifetime mortgages let 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 however others are flexible, meaning you can repay the interest as and when you choose.
  4. Protected lifetime mortgage - Protected lifetime mortgages let you protect a percentage of the value of your property, which means you can guarantee an inheritance for family. However, protecting some of your property value this way will reduce the amount of equity you can release.
  5. Enhanced lifetime mortgage - Enhanced lifetime mortgages or impaired lifetime mortgages as they are also known are designed for people with medical conditions and shorter life expectancy. 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.

Home reversion plans and lifetime mortgages are regulated by the Financial Conduct Authority. Access the Equity Release Council consumer guide which details the different types of Equity Release.

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.

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