Equity release is the term used to describe the different ways you can benefit from the value of your home without having to move out of it. You either take out a loan secured on your home or sell part or all of it to give you a regular income or a lump sum, or both.

The equity (value) you have in your property is its value less any mortgages or other charges against it. So, on paper at least, you might seem well off. But, unless you can release it, this is not money you can benefit from. Equity release schemes are designed to help you do so.

Lifetime Mortgage

One way of releasing money from your home involves taking out a Lifetime Mortgage against the value of your property. This is a special type of loan that is normally designed to run for the rest of your life. You can borrow money against the value of your property, and take the funds in the form of a lump sum and/or a regular income. There are two main types of lifetime mortgage: an interest-only mortgage or a rolled-up interest mortgage.
  • An interest only mortgage is where you borrow a lump sum, secured against the value of your property and you pay interest on that money on a monthly basis. When your home is eventually sold the original sum borrowed is repaid.

  • A rolled-up interest mortgage is where you release money against the value of your home and the lender provides a lump sum and/or a regular income but you pay no interest until you die, or the property is sold. The interest is added to the loan either monthly or annually, and this is “rolled-up”, causing the eventual debt to be considerably greater than the original loan. The effect of this increase may be reduced by future rises in property prices. The amount you can borrow will depend on the value of your property and your age. The older you are, the higher percentage of the value of your property you can borrow.

With both these schemes you retain ownership of your house.

Home Reversion

A reversion company buys, or arranges for someone else to buy, part or all of your home.

You receive the sale proceeds as a cash lump sum, an income, or both.

You will normally receive less than the full market value of your home – typically between 20% and 60% - because the buyer cannot re-sell the property until you die or until you move out (perhaps into a care home)

The older you are when you start the scheme, the higher percentage you will receive.

You also usually get a lease giving you the right to carry on living in the home for the rest of your life (or until you no longer need it).

To understand the features and risks of a Lifetime Mortgage, please ask for a personal illustration.

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