Equity Release News

Learn the Basics of Home Income Plans

Home income plans

A home income plan is a form of equity release that allows home owners to obtain a loan against the value of their property. Today, home income plans are not very popular but they are still offered by some providers. There are two basic home income plans: an equity release scheme with the purpose of raising a capital lump sum amount and an annuity plan which uses the lump sum amount to purchase an annuity that will provide home owners with a regular source of income for the rest of their lives.

As with any loan, interest is charged on home income plans as well; however, the interest amount is normally repaid from the income received for the annuity. This is normally an automatic payment that is deducted on a monthly basis from the income amount. The initial loan amount is normally repaid by selling the property when the home owner dies.

A Home Income Plan has a number of advantages. Home owners can secure a guaranteed source of income for the rest of their lives by investing in home income plans. The fact that the interest payments are automatically deducted makes it much easier on the homeowner. Some providers offer a combination of both plans in that apart from the annuity income, home owners can also receive a cash lump sum amount. As homeowners become older, the advantages increase in that providers tend to offer higher income to older homeowners.

Based on the fact that the interest is automatically repaid on a monthly basis, the initial loan amount remains the same. This means that the beneficiary will benefit from any increases in the value of the property.

Home income plans do have a few disadvantages. Since that most providers only offer a lump sum amount to be invested in an annuity, home income plans are not very appealing to homeowners who are in need of immediate cash. Although home income plans secure a guaranteed source of income, the income amount is usually fixed. As a result, the income loses its purchasing power over the years due to inflation. As the economy of the country is affected by inflation, the fixed income received on a monthly basis decreases in value and is no longer worth as much as it did when the annuity was purchased.

The home income plan option is an acceptable way to get income if you are unable to save money during your working life. However, it is not the only option. Home equity release plans come in a variety of packages where only a few require annuities. Other plans do not work on such an investment.

Rather lifetime mortgages and home reversion schemes work off a different and sometimes more affordable plan. Lifetime mortgages work on the premise that you own your home in full so that you can tap into the equity available. With most lifetime mortgages you are supposed to make one payment at the end of your life. This payment includes interest and principle balance of the loan. Rather than paying during your life when you are in need of cash, you get to hold off.

For some this works better and for others they would prefer to have an interest only plan without the home income plan attachment. The interest only lifetime mortgage is one that you pay interest payments each month. You do not pay on the principle balance until your death or until you move out.

The nice thing about lifetime mortgage plans is that there are more than two options. You can even get a drawdown mortgage where you take what you need and only pay interest on what you removed from the account.

Home reversion is different still. In this scheme you actually sell a part of your home and in the end the entire home is sold. Whatever you did not sell during your life is given to your kids in the form of cash. You do not have a mortgage, you have tax free cash, no income or annuity is required.

The only trouble with home reversion is that you cannot keep the home and neither can your beneficiaries. While some providers allow your family to make a payment for the amount of home sold to get it back, the payment is often way more than you took initially. It is just not conducive to saving the home for family.

Home income plan or other equity release scheme, it is for you to decide. After examining all the information you should have a handle on what you prefer.