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There are two major types of Equity Release Schemes:

Lifetime Mortgages

These schemes allow you to remain in your property indefinitely and unlock some of the value tied up in your home. The funds can be released in a number of ways, such as a lump sum, regular payments or a combination of the two.

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How a lifetime mortgage works

A lifetime mortgage is a loan secured against the value of the property, typically no repayments are made and the interest will roll up during the term of the mortgage and when eventually the property is sold the loan plus outstanding interest is repaid. As the interest is compounding the debt can increase quite quickly and this is why the younger you are the less you can borrow against the value of your property.

Types of lifetime mortgage available

Drawdown Schemes

In recent years this type of scheme has become very popular as you don't have to take the full advance up front and you can release cash up to a pre-determined amount as and when the funds are needed. The main advantage is that you only pay interest when the funds are released so interest will accrue slower than if the funds were released all up front, you will also maintain more control.

Interest-only mortgage

If you are income rich and cash poor, you may wish to consider taking a loan against the value of your property but instead of the interest rolling up you make the interest payment to the lender each month and therefore the loan will not increase in value. The loan is eventually repaid when the property is sold.

Home Income Plans

This schemes usually involves releasing a lump sum from the value of your home and then an annuity is purchased to provide you with a regular income. Unlike the other schemes when the cash released is tax free, the annuity payment will be subject to tax. The amount of income you can achieve is based on a number of factors such as the value of your property, your age and your state of health.

Home reversion plans

This type of scheme is an alternative to lifetime mortgages instead of interest rolling up throughout the term of the mortgage; you sell a proportion of the value of your home in exchange for a cash lump sum.

How the scheme works

You can sell all or a part of your home to a reversion scheme provider in return for a lump sum, a regular income, or possibly a combination of the two. For instance you may sell a 50% share in your home in exchange for a cash lump sum, when the home is sold or maybe you move into long care the house is sold and the proceeds would then be split of a 50-50 basis.

One of the major attractions of this type of scheme is that it is often possible to release a larger amount of cash than with the lifetime mortgage arrangement. How much money can you release? You can usually get between 35% and 60% of the value of your home, this will depend on numerous factors such as your age, your sex, state of health and the value of your home.

The Reversion company will get a share of the future value of your home and some schemes limit the gains you may make. Reversion plans can not normally be altered if you change your mind, but it is usually possible to transfer the scheme to a new property.


To understand the risks of equity release by using lifetime mortgages/home reversion schemes, ask for a personalised illustration

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