Types of Equity Release

There are various types of Equity Release schemes available today, so you will be sure to find one that suits your needs. The right scheme for you depends on various factors. These factors can include your age, the type of property you own, as well as the amount of capital you need to release.

There are two main types of Equity Release plans:

Home Reversion Plan:

Simply put, a Home Reversion plan allows you to sell part or your entire home to a 'reversion company'. You will not receive the full market value of your house as you would when selling privately, but you have the right to live in your home for the rest of your life.

The amount of money you receive is based on several important factors, such as your age and the value of your property. Generally, you will receive 35% or even less of the market value of your home, and this figure will rarely exceed 60%. When your home does get sold, the reversion company will claim a pro rata share of the proceeds of the sale. Generally, this type of plan is only available to people over the age of 65 years.

Lifetime Mortgages:

A Lifetime Mortgage is another common type of Equity Release plan. With this plan you are able to take out a loan against your house. The lender will then pay you out with a cash lump sum, a monthly income, or both. The amount will depend on the value of the house.

Usually with Lifetime Mortgages you will not be required to make any payments until the property is sold. In this case the interest will build up and be added to your total amount owed. This can be pricey as interest rates can skyrocket, causing the amount you have to pay back to be exceptionally larger.

Also, the value of your property could rise faster than the amount you owe, which could either reduce or eliminate interest rates. On the downside, the property value may also drop. Also, interest on the property will break down your equity much quicker. Remember, the value of your house is not guaranteed to rise.

There are schemes available that allow you to make interest payments over the course of the equity release. It is wise to speak to your financial advisor for advice on the best scheme for you. Remember to consult your family members before deciding on an equity release scheme.