What Is Equity Release?
Answer: Equity release is a way for elderly people to access the money tied up in their homes, without having to move out.
There are two types of equity release: lifetime mortgages and home reversions. A lifetime mortgage is a loan secured against your home, which you will never have to repay as long as you live in it. The loan is repaid from the proceeds of the sale of your home when you die or go into long-term care. A home reversion plan enables you to sell all or part of your house to a reversion company in return for a lump sum or regular income. You continue to live in your home, but own less and less of it over time until you eventually own nothing.
Equity release schemes secured on a home are sometimes called “home-assured plans”.
What is Lifetime Mortgage?
Answer: A lifetime mortgage works differently to a repayment mortgage in that you will never have to make monthly repayments. Instead the loan, plus interest and fees, is repaid when your house is sold after you die. If you stay alive, you don’t pay anything back. The main benefit of a lifetime mortgage is that the interest rates charged tend to be lower than with other forms of borrowing such as credit cards or personal loans. However, most lenders charge an arrangement fee and early repayment charges so it’s important to check all these costs before taking out a plan. Usually there’s no upper age limit for taking one out but some schemes can be arranged only until you reach 80 or 85, depending on the lender. They are offered by housing associations and building societies as well as banks and other lenders.
What is Home Reversion Plan?
Answer: A home reversion plan works differently to a lifetime mortgage in that you will never own your property outright when you die, but continue to occupy it while owning less of it over time until you eventually own nothing. The main benefit of a home reversion plan is that you get an instant income every month without having to sell up or take out extra borrowing elsewhere. You also get back some of any capital at the end, which can help with care costs if necessary. However, interest rates tend be higher than for lifetime mortgages. The biggest drawback is the loss of your home and its value at the end of the plan.
Do I need to pay an insurance premium?
Answer: Some equity release schemes include life insurance as part of their package, but not all do. So if you take out a lifetime mortgage or home reversion plan, check whether it includes life cover as part of its fees and charges – as some companies will let you buy extra protection later on if you need it. If your equity release plan doesn’t include any form of life insurance, speak to other providers about taking out a separate policy which should help protect other assets in case anything should happen to you before your house is sold and/or your plan completed.