Types of equity release
What types of equity release product are there?
There are two main types of equity release 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
Home reversion involves selling part or all of your home to a home reversion plan 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.
Home reversion plans are not loans 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 plans?
The fundamental difference between the two is when you take out a lifetime mortgage you still own your own home. But with home reversion plans, 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 product builds up as compound interest over the years. With home reversion plans, there is no interest building up. The price that you’re offered for the percentage of the property you’re selling is in line with how long the reversion company expects the plan to run.
Key differences between lifetime mortgages and home reversion plans
|Lifetime mortgage||Home reversion plans|
|It’s a mortgage, but you don’t usually have to make any repayments during the lifetime of the mortgage unless you choose to do so.||The provider buys a share (or all) of your property in exchange for a lump sum or regular income. The amount you receive will be less than the current market value of your property as you retain the right to live there, rent free, until you die or move in to long term care.|
|The interest on the mortgage is usually 'rolled-up' and added to the mortgage although with some products you can choose to pay the interest if you wish.||When the property is sold, the provider receives their share of the sale proceeds, based on the share that you have sold to them.|
|The mortgage is usually 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 charges 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 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.
HUB Financial Solutions, part of the Just Group, offers an equity release advice service that could help you decide if equity release is right for you.