What are the different types of equity release?


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equity release schemes

*Updated June 2024*

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, a home reversion plan and a lifetime mortgage. 

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 is 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 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 explained - A lump sum lifetime mortgage, often referred to as a roll-up lifetime mortgage 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.

  2. Drawdown lifetime mortgage explained - 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 draw down, not the money held in reserve.

  3. Interest only lifetime mortgage explained  - 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 explained  - Protected lifetime mortgages let 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.

  5. Enhanced lifetime mortgage explained  - 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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What does Martin Lewis think of equity release in 2024?

Martin Lewis thinks equity release can be an option for some homeowners over 55 as long as the alternatives have been explored first. He explains how to release equity with a lifetime mortgage or home reversion plan and what to consider before committing.

Did you find this information helpful?

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Equity Release Council

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Simply Equity Release is a member of the Equity Release Council and part of the Over50choices Group who is regulated by the FCA (No.5954280) for insurance products.

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