What types of schemes are there?
If you are considering unlocking the cash tied up in your home and want to compare equity release plans, there are two options available that let you release equity but remain living there; namely a home reversion scheme and the more popular lifetime mortgage.
Lifetime Mortgage - A Lifetime Mortgage works in a similar way to a normal mortgage in that it is a loan secured on your home; the difference being that you don’t have to make any monthly repayments. Instead the interest builds up over the years and is only repaid when the last surviving plan holder dies or moves into long term care.
Home Reversion - Home reversion plans are not loans and therefore work differently to a Lifetime Mortgage. With a Home Reversion Plan, you agree to sell all or part of your home in return for a lump sum of money.
As a result there is no interest to pay however, as the value of the property increases, you only benefit from the increase on the percentage of the home that you still own.
It’s worth keeping in mind that home reversion companies are more likely to offer you less than the actual property value as they are taking on the risk of unknown future property prices. As a result their initial calculations are usually based on a property price that is lower than the market value.
When the property is sold upon the last survivor’s death (if joint) or because they’ve move into a care home, the home reversion company will receive their share of the proceeds.
Read more about types of equity release plan