There are two main types of equity release schemes: lifetime mortgage, which allows you to borrow money against your house; and home reversion, whereby you sell a share in your house.
You borrow a proportion of your home's value. Interest is charged on the amount, but nothing usually has to be paid back until you die or sell your home or have to move into long term care accommodation. The interest is compounded or 'rolled up' over the period of the loan. Many providers now offer the facility of penalty free optional monthly repayments.
You would usually sell a share of your property to the provider for less than the market value. You have the right to stay in your home for the rest of your life if you wish. When you die or move into long-term care and the property is sold, the provider gets the same share of whatever your home sells for as repayment. For example, if you sold 40% of your property to the provider, it would get 40% of the sale price. However, through a Home Reversion Scheme, you may only have been able to release 20% of the value at inception.
Home reversions are usually only available to people aged 65 or older whereas Equity Release is usually available from aged 55. Some enhanced products offer more favourable terms if you're a smoker or have health problems that could decrease your life expectancy. Generally, for the shorter term, lifetime mortgages are deemed better value for money however over the longer term home reversion plans are deemed better value for money.
Equity release is a complex subject so if you are considering releasing some of the value of your home through an equity release scheme, taking advice from one of our equity release specialists is essential.
Equity release schemes are designed to be a lifelong commitment, so if you change your mind, need to move to a new house or want your equity for something else later, you could find yourself restricted.
Most importantly, take independent legal and financial advice before deciding to release equity from your home.