Types of equity release
Which equity release products could I buy?
What types of equity release product are there?
There are two main types of equity release scheme available - lifetime mortgages and home reversion plans.
A lifetime mortgage is a mortgage secured against your home, which allows you to release a cash-lump sum from the equity (or value) held in your property. With a lifetime mortgage, you retain ownership of your home and can still benefit from any price increases.
There are a number of different lifetime mortgages available on the market which we show you in detail in this section of the website. These include:
Home reversion plans involve selling part or all of your home to a home reversion provider in return for a cash lump sum. This is usually higher than the sum you can raise from a lifetime mortgage. While all or part of your home will belong to someone else, you can remain living there for the rest of your life rent-free.
A home reversion plan is not a loan and so there's no interest to pay. However, if your property increases in value, you will only benefit from the increase in value of the proportion you still own. Find out more about home reversion here.
Equity release may not be right for everyone. It may affect your entitlement to state benefits and it will reduce the value of your estate.
What are the differences between lifetime mortgages and home reversion?
The fundamental difference between the two is when you take out a lifetime mortgage you still own your own home. But with a home reversion plan, you actually sell a share of your home in exchange for a lump sum of money or a lifetime of regular income.
The other main difference is that with a lifetime mortgage, the fixed interest rate agreed at the time you take out the plan builds up as compound interest over the years. With a home reversion plan, there is no interest building up - the price that you are offered for the percentage of the property you sell reflects the time span that the reversion company expects the plan to run.
Key differences between lifetime mortgages and home reversion
|Lifetime mortgage||Home reversion plan|
|It’s a mortgage, but you don’t usually have to make any repayments during the lifetime of the mortgage.||The provider buys a share of your property based on its current market value, taking into consideration things like your age and how long you’re likely to live in and own the property.|
|The interest on the mortgage is usually 'rolled-up' and added to the mortgage.||When you sell the property, the provider receives a share of the sale proceeds, based on the share you have sold to them.|
|The mortgage is paid back when you die or move into long term care.||If you choose to buy back the share of the property you sold to the provider, you'd have to do so at the full market value.|
|Early repayment fees could apply if you choose to pay back the mortgage early.|
Are there any other charges?
When you take out either a lifetime mortgage or home reversion plan there may be other costs associated, including:
- solicitors' fees
- survey fees
- application fees.
It is also worth noting that lifetime mortgages also are designed to do just that – last a lifetime and many carry large early repayment charges should you decide to repay the mortgage early. It's worth understanding what this charge could be, before you decide to take out a lifetime mortgage.
Is there anything else I should know?
Yes. All equity release products could reduce the amount you leave behind in your estate when you die, they could affect your entitlement to state benefits and they could also affect your tax position.
We recommend that you talk to a professional adviser before making any decisions about buying equity release products.
Our sister company, Just Retirement Solutions, offers an equity release advice service that could help you decide if equity release is right for you.