An equity release plan enables you to fund your retirement by either taking out a lifetime remortgage on your property or choosing a ‘home reversion’ whereby you sell all or part of your house to a company or individual in exchange for a lump sum of cash. You can then choose to invest all or part of the equity release payment into an annuity or other investment scheme that will provide you with an income for the rest of your life, or use the cash to fund home improvements, medical costs or even a holiday.
To take part in an equity release scheme, there is a minimum age limit (typically 50). Equity release is a complicated financial product, because it will affect the inheritance that you plan to leave, and also because it may impact on benefits that you receive and tax that you pay. SimplyFinance would recommend speaking to a qualified equity release adviser about the options available to you, to ensure that you have explored every avenue before proceeding.
Types of Equity Release Mortgage
- Home Revision Scheme: With this type of equity release mortgage, you would sell part of your house to a home revision company. You receive a lump sum of money, and the home revision company is repaid by the proceeds from the sale of your house after your death.
- Lifetime Mortgage: There are a number of options available for a lifetime mortgage:
Mortgage or Roll-Up Plan. You borrow a sum of money from a mortgage lender using your home as collateral. You'll make payments to the lender to repay the amount of the equity release mortgage loan.
Home Income Plan. You'll receive regular, income-like payments, using your home as security against the loan. The lender will again be repaid by the proceeds from the sale of your house after your death.
A fixed repayment lifetime mortgage. You get a lump sum, but don't have to pay any interest. Instead, when the home is sold, you have to pay the lender a higher amount than you borrowed, agreed in advance between you and the lender.
An interest-only mortgage. Out of the income that you receive, you pay off the interest on the equity release mortgage loan. The loan itself itself is repaid by the eventual sale of the property.
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