This section delivers all the information required to make that all important decision on which Equity Release Scheme is best for you.
It is essential you receive qualified independent advice to ensure the best equity release plan is selected.
Lifetime Mortgages are the most popular Equity Release scheme of them all due to their flexibility and optional drawdown facility.
Homeowners above the age of 55 are eligible to apply for a Lifetime Mortgage plan were they retain 100% ownership of their home in exchange for a lifetime loan secured against the property. This means that once the last homeowner dies or moves into permanent care then the loan capital amount plus the agreed fixed interest rate is finally repaid to the provider meaning that you do NOT have to pay any monthly repayments!
- Drawdown equity release schemes
- Roll-up equity release
- Lump sum plans
- Home Income Plans
- Interest Only Lifetime mortgages
Our in-depth guide to lifetime mortgages can be found here – Lifetime Mortgages Explained
Home Reversion schemes are the least favoured Equity Release plan due to the fact that borrowers are understandably not comfortable with exchanging all or part of their ownership of their home in return for a tax-free lump sum or income plan. However homeowners above the age of 65 can still take out a Home Reversion plan giving them a lifetime agreement of tenancy to their property with no monthly repayments or interest!
- Lump sum plans
- Income plans
- Can release much more money as a lump sum as opposed to a Lifetime Mortgage
- Guaranteed fixed inheritance
- No monthly repayments
Our in-depth guide to home reversion plans can be found here – Home Reversion Explained
Interest Only Lifetime Mortgages
Interest Only Lifetime Mortgages are becoming one of the most popular equity release schemes due to their flexibility and ability to control the balance of the mortgage. They are suitable for those with good disposable retirement incomes & happy in making monthly repayments of only interest.
Homeowners above the age of 55 are eligible to apply for an Interest Only Lifetime Mortgage plan, where they can retain 100% ownership of their home, in exchange for a lifetime loan secured against the property. Monthly payments of interest at a fixed lifetime rate are paid back to the lender based on how much tax free cash is released. With the payments fixed, the planholder has the security of affordability in the future. This then continues for as long as the interest only lifetime mortgagor is alive.
Once the last homeowner dies or moves into permanent care then the original loaned capital only needs to be repaid back to the provider. This means that your beneficiaries will know the exact amount that will need repaying, and for them, the knowledge of how much inheritance they will eventually receive!
- Cheaper alternative to a capital and interest mortgage
- Available to people in retirement
- Allows the borrower a choice of their own repayment vehicle
- The loan can be fully repaid at any time
- The mortgage can be granted by the provider without any proof of income being shown
Our in-depth guide to interest only lifetime mortgages can be found here – Interest Only Lifetime Mortgage Plans Explained
Home Income Plans
Using a combination of a home reversion plan and an annuity, a retiree can receive a fixed, regular income for the rest of their life.
The Home Income Plan works by using the home reversion plan to provide a capital lump sum. This will involve selling a percentage of the property to the home reversion provider. The capital lump sum provided then goes to purchase an annuity which in turn pays out the regular income.
Older Home Income Plans used a mortgage to provide the income which should have been sufficient to service the mortgage interest only payments in addition to paying an income. However, the danger from using this was that if interest rates rose, the majority, if not all the income produced by the annuity would go towards mortgage payments & leave little income. For this reason, mortgages are not now used in such a combination for income purposes.
The home reversion loan is finally repaid when the property is sold, or upon moving into long term care. The annuity will only cease upon death of the annuitant, & will continue to be paid thus providing continuing health care.
The problems with home income plans
The rigidity of these contracts now makes them an unpopular financial choice. Today’s retired generation require flexibility and once a home income plan has been set up, no amendments can be made in the future, other than selling more of the home.
Additionally, annuity rates have fallen significantly over several years and means the return of income they provide isn’t that generous. Therefore, Home Income Plan’s would only seem feasible for people aged 75+ and maybe in poor health as the annuity income would then be made greater by virtue of an enhanced annuity plan.
If you wish to discuss any of these equity release schemes in greater detail, please call Freephone 0800 321 3156 where you can speak directly with a qualified adviser.
Further options on the best types of equity release UK schemes available can be found by following these links: –
To understand the features and risks of a UK Equity Release mortgage, please ask for a key facts illustration.