Which Equity Release Product?
When considering the best way to release equity from your home, you are likely to encounter four different types of regulated products:
1. Lifetime Mortgage
Lifetime Mortgages are the most popular method used by people to release equity from their property. Their popularity is probably due to their simplicity: you borrow a percentage of the value of your home and only repay the money you have borrowed when your home is sold or you move into care. There are no monthly payments to be made like a traditional mortgage but interest accumulates in a compound way on an annual basis.
2. Interest Only Lifetime Mortgage
An Interest Only Lifetime Mortgage works in a similar way to the Lifetime Mortgage outline above except that you pay the interest on the loan. The payments are made on a monthly basis and so will know exactly how much money will need to be repaid to the provider of the mortgage when your home is finally sold. You will need to make sure that you have regular monthly income that covers the monthly mortgage interest payments.
3. Flexible Drawdown Lifetime Mortgage
A Flexible Drawdown Lifetime Mortgage is another type of Lifetime Mortgage but it operates in a different way. You are provided with a cash fund in exchange for a share of equity in your house and you can make withdraws from the fund when required until the whole fund has been used up. The principle of Flexible Drawdown Lifetime Mortgages is the same as flexible drawdown pensions.
4. Home Reversion Plan
A Home Reversion Plan operates on the same basis as a Lifetime Mortgage except that you sell a percentage of your home instead of borrowing against it. When you come to sell your home or move into care, the provider of the Home Reversion Plan will reclaim the money they have loaned you.
You can receive your money in the form of a lump sum or monthly income, and no monthly payments are required.