Equity Release Schemes
There are two main types of Equity Release Schemes:
Lifetime MortgagesWith a lifetime mortgage, you:
- take out a loan that is secured on your home.
- continue to own your home, although you will have to pay back the mortgage on it.
- repay the mortgage from the proceeds of the sale of your home when you die, or if you move out of it (perhaps to a care home).
There are different types of lifetime mortgages:
- Roll up mortgages
- Interest only mortgages
- Fixed repayment mortgages
- Home income plan
- Shared appreciation mortgage (SAM)
A reversion company buys, or arranges for someone else to buy part of, or your entire home. You get the sale proceeds as a cash lump sum, an income, or both. You can invest the lump sum yourself as another way of providing an income – some schemes can do this for you.
You will normally be paid less than the full market value of your home – typically between 35% and 60% – because the buyer cannot re-sell the property until you die or until you move out (perhaps into a care home).
Some facts about home reversions:
- The older you are when you start the scheme, the higher the percentage you’ll get.
- The minimum age for these schemes is usually higher than for lifetime mortgages.
- You 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).
- Usually you do not pay rent, or if you do it is a token amount. But with some schemes, you can pay a higher rent in return for more money from the sale.
- Once the scheme has started, the buyer of your home benefits from any rise in its value. If you have only sold part of your home, you benefit from any rise in the value of the part you have kept.