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Types of Equity Release

There are two types of equity release

Lifetime Mortgage

A lifetime mortgage is a form of equity release where a loan is secured against your home. It provides you with a tax-free cash lump sum or a regular income to spend as you wish. There are three variations of lifetime mortgage plans.

Roll up

  • This is where the interest on the money borrowed is added or ‘rolled up’ throughout the lifetime of the mortgage. The amount you owe will continue to grow as the interest accumulates and is added to the loan
  • There are no monthly payments to make, although you can choose to pay some or all of the interest as you go along
  • The loan plus the interest will be paid back in full from the proceeds of selling your home. This usually only happens when the last remaining person living in the property either dies or moves permanently into long-term care.
  • You retain 100% ownership of your home

Drawdown

  • This works in the same way as a roll-up plan but is more flexible
  • You don’t receive the full cash lump sum of money available to you straight away. Instead, you agree on an initial first amount and choose to withdraw or ‘drawdown’ smaller sums as and when you require, up to your agreed limit
  • The interest is only added to the amount withdrawn so it increases more slowly than if you released the full sum at the beginning
  • You retain 100% ownership of your home

Flexible

  • As with roll up and drawdown, you’ll receive an initial lump sum and can have a drawdown facility
  • You can choose to make voluntary payments without incurring early repayment charges
  • You retain 100% ownership of your home

A lifetime mortgage is a loan secured on your property

Home Reversion

Home reversion is a different form of equity release which allows you to sell part or all of your home to a specialist company in exchange for a tax-free cash lump sum.  You must be a minimum of 60 years old. The percentage of your home is sold for less than the market value and although you don’t pay any rent, you no longer own 100% of your home. Your estate will miss out on some share of any house price growth and it can be difficult to reverse the deal once it has been made as toy are selling part of your home. A home reversion plan will reduce the value of your estate and may affect your entitlement to state benefits.

A home reversion plan will reduce the value of your estate and may affect your entitlement to state benefits. If you pass away soon after taking out the plan, you have effectively sold your property cheaply. Some plans do have provisions in place so that you are protected.

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