What types of equity release are there?
As with most financial products there are different types of equity release schemes and some may be more suitable than others. There are three main types of equity release schemes, which do not require you to make a monthly payment and include:
- Lifetime mortgage (also known as a roll-up mortgage).
- Home income plan.
- Home reversion plan.
A lifetime mortgage is a long-term loan payment system, which is secured against the worth of your home. As a policy holder you receive either a lump sum of cash or monthly payments against the value of your residence, after which the value of the loan is then repaid when you die or go into care. The loan is repaid by the currency tied up in your home, which will be sold when you go into lasting care or pass away. Lifetime mortgages are usually only available to people over the age of 55. The lifetime mortgage is also known as a roll-up mortgage plan, because the interest due on the loan each month is rolled up so that the total value of the loan is paid by the sale of the home or the executors of your will. The person selling the property will keep the balance remaining between the total loan repayment and the sale price of the house.
Home income plan
Home income plans are mortgage schemes which enable the policy holder to receive a regular income against the value of their abode. The interest payments on the loan will be deducted from the total payment you receive each month. Home income plans are beneficial because they guarantee a regular income, but they are not suitable for everyone and it usually pays to opt for a different equity release scheme unless you are over the age of 80.
Home reversion plan
A home reversion plan involves selling a proportion of your property to an equity release scheme provider in exchange for a lump sum payment or regular income. The sale price of the property is usually much lower than the market value; for example, if you choose to sell 100% of your property you may receive as little as 25% of the market value, which may then increase as you get older. The provider discounts the price according to them potentially having to wait several years to earn a profit on their investment, as you may live or remain in your own home for a long time.