What Type of Equity Release Plans are Available To Me?

There are two main types of Equity Plan; Lifetime Mortgages and Home Reversion Plans. Lifetime Mortgages have a couple of variations but Home Reversion Plans are all pretty much the same.

Here is a brief guide to each:

Lifetime mortgages
Roll-up lifetime mortgages

After you take out a loan against your property, interest will start to be added to the amount you have borrowed. With a “Roll Up” plan, you will not make any repayments of either the capital or interest during your lifetime (or until you move permanently into long term care). Instead the interest is ‘rolled-up’ and added to the total loan. When the house is sold, then the full amount, consisting of the original amount borrowed plus all the interest is repaid to the lender.

Drawdown lifetime mortgages

These types of plan differ in as much as you do not have to take one large lump sum at the beginning of the plan. Instead, you are given a maximum amount that you can borrow and can take much smaller amounts in stages until you get to that maximum. The minimum you can take (or as it is sometimes called “withdraw”) at each stage may be subject to certain conditions, as can the time between each “withdrawal”. As you get older you may find that the maximum amount you can take will get bigger. The advantage of this style of plan is that because you are only taking amounts as you feel you need them, the interest charged will be lower over time

Interest payment loans

In these plans, the lender will allow you to make repayments to the loan. The amount you repay is usually your choice, and if you stop making payments, or the amount you are paying is less than the interest being charged, then the normal “roll up” method will be used. All Equity Release plans need to be looked at carefully, but with these type of plans you need to particularly look at what you can and can’t do and under what circumstances.

Video courtesy of Dennis Perry at The Right Equity Release.
Home reversion schemes

These schemes are completely different to those previously mentioned. In using a Home Reversion scheme, you are actually selling all or part of your home. You will receive a lump sum and in return you will be given a lease allowing you to live rent free (or at a nominal rent) in the house for the rest of your life. You really must get expert legal advice regarding every aspect of this arrangement, including the lease as this will set out your responsibilities and obligations as the tenant. This can include many conditions such as insurance limits, maintenace responsibilities and who can live with you. Upon your death (or move into long term care) the property will be sold. If you have sold the whole house, then the reversion company will get the whole of the proceeds. If you have sold a part of the house then the proceeds of the sale will be shared in line with the original split. It may look something like this:

Original value of house……………………………………………………………….£200,000

Original percentage sold to reversion company……………………………….50% 

Original cash amount taken…………………………………………………………£100,000

Sale amount upon death……………………………………………………………..£300,000

Amount repaid to reversion company (50%)………………………………….£150,000

Amount left in deceased estate…………………………………………………….£150,000

This is a very simple illustration of the way a Home reversion can work. It doesn’t take into account of costs and fees involved.

Next: How Do I Pay Back The Money From An Equity Release Plan?

 

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