Equity release plans are a means for those aged 55 and over to access money tied up in their home, without the obligation to make any monthly repayments. They can be a highly attractive option for people either in, or approaching retirement age who are “asset rich, but cash poor” and who do not want to release equity by moving to a lower value property.
The flexibility and safeguards built into plans that comply with the Equity Release Council product standards enable thousands of home owners every year to tap safely in to their housing wealth without having to worry about making monthly repayments or having to leave their home. For the protection of equity release borrowers, the two types of equity release, Lifetime Mortgages and Home Reversion plans, are both regulated by the Financial Conduct Authority.
Choosing to take equity release is a major financial decision requiring the type of specialist advice offered by Cotswold Mortgage Advice Centre and often involving both the would-be borrowers and their immediate family. Our advisors can guide you through the various options available and discuss how taking out a plan may affect your tax position, your eligibility for means-tested benefits or your ability to move or sell your property.
With a lifetime mortgage whilst you may have the option of making regular interest payments, the majority of borrowers choose not to make any monthly repayments. In this case, the loan and rolled up interest are repaid by your estate when you either die or move into long term care. If you have a partner, repayment is not made until the last remaining person living in the home either dies or moves into care. This means that both you and your partner can live in your home for the rest of your lives.
You can choose to receive your funds in a lump sum or in smaller, regular amounts. There is also the option to increase the amount you have borrowed at a later date, up to the maximum limit agreed with the plan provider. By choosing to protect some of the value of your property, you can benefit from releasing a lower amount of equity while still retaining something to pass on to your children.
Home Reversion Plan
With a home reversion plan you sell all, or a part of your property to the provider in exchange for a cash lump sum and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life. The value of the lump sum payment will depend upon the property value, the proportion which you sell to the provider and your and your partner’s ages and state of health.
The percentage you retain in your property remains the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.