Types of Equity Release | Equity Finance

Lifetime Mortgage

A Lifetime Mortgage allows you to release some of the equity in your home as a loan, on which interest is charged. The interest can be added to the loan or you can choose to pay the interest each month. You would not be required to repay the loan until after your death or until you moved home.

Advantages of a Lifetime Mortgage

• It is available to those as young as 55.
• You still own your home and therefore still benefit from any rises in house prices.
• The remaining equity in your home can still be left to your estate.
• You can choose to have an income for life, a lump sum, or both.

Disadvantages of a Lifetime Mortgage

• With the interest rolling up the debt will grow over time, although this can be limited by only releasing the money you need when you need it.
• If you choose to repay the loan early, an early repayment charge may apply.
• Your eligibility for means tested benefits may be affected.
• Your taxation situation may be affected.
• Your options for moving or selling your home in the future may be affected.
• The value of your estate may reduce, affecting inheritance for family members.

Home Reversion Plan

A Home Reversion Plan allows you to sell all or a share of your home to a company in exchange for a cash lump sum or income or combination of both. You would be given a lease giving you the right to carry on living in the home for the rest of your life or until you no longer needed it. You would not normally pay rent but, if you did, it would be a token amount. On death or moving, the reversion company sells your property and takes the whole of the percentage sold to it and your estate receives any remaining value.

Advantages of a Home Reversion Plan

• You know what proportion of your home will be used at the outset.
• You can leave a fixed proportion of equity to your estate.
• Often offer a larger lump sum than is available under a lifetime mortgage.

Disadvantages of a Home Reversion Plan

• You become a tenant in your home as you have to transfer part of the ownership of your property.
• If you choose to repay the loan early, an early repayment charge may apply.
• Your eligibility for means tested benefits may be affected.
• Your taxation situation may be affected.
• Your options for moving or selling your home in the future may be affected.
• The value of your estate will reduce, affecting inheritance value for family members.
• Early death risk, i.e. if you die early you may not get good ‘value’.
• You would normally be selling at less than the full market value as the buyer cannot re-sell the property until you no longer need it.
• You do not benefit from any growth in property value on the percentage sold.