Equity release plans explained
There are four different types of regulated equity release, each of which will be fully explained to you during your initial consultation and we will show you clear examples of how each of them works.
- Lump Sum Lifetime Mortgages
- Lifetime Mortgage with flexible cash release
- Interest Only Lifetime Mortgages
- Home Reversion Plans
Lump Sum Lifetime Mortgages
Here the provider lends a percentage of the property’s value. You are charged interest on the loan but unlike an ordinary mortgage, there are no monthly repayments and no set term.
The loan continues until you vacate the property at which point the original sum borrowed plus any interest must be repaid.
Lifetime mortgages are sometimes referred to as ‘reverse mortgages’ in other English speaking countries.
Lifetime Mortgage with Flexible Cash Release (Drawdown)
Also known as a draw down lifetime mortgage, these work as above but with a regular cash reserve/draw down option allowing you to withdraw amounts at a frequency you choose up to a specified amount of years, or until the cash reserve has been used up.
Interest is added to the loan each month and no repayments are required during your lifetime. Interest is only charged when or if withdrawals are made.
Interest Only Lifetime Mortgages
An interest only lifetime mortgage involves borrowing a percentage of the property’s value and then paying the interest each month. This type of lifetime mortgage leaves the amount borrowed intact: it doesn’t get any bigger as the interest is paid each month. When the property is sold the original amount of capital borrowed is repaid. Some form of monthly income is required to meet the interest payments on this type of equity release plan and eligibility is subject to credit status and meeting affordability criteria.
Home Reversion Plans
Under this type of plan you sell your home or a percentage of it in exchange for a lump sum or monthly income, or a combination of both. You can stay in the property for life or until you wish to sell it, at which point the provider will reclaim that percentage of the sale price.
With these plans, there is no build-up of interest so they are sometimes favoured over the Lifetime Mortgage schemes.
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