The Different Types of Equity Release Plans
There are two main types of Equity Release plans; Home Reversion plans and Lifetime Mortgages.
Home Reversions:
- A home reversion company buys all or part of your home at a discounted value; between 20-60% of the current market value.
- You are required to sign a document called a Lifetime Lease which legally allows you to remain in the property until both you and your spouse die.
- You will remain in the property rent free, however some companies may stipulate that you must pay a nominal rent ie:£1.
- You will still be responsible for the upkeep of the property.
- The money received from the plan is tax free. However, if you then decide to invest the cash to receive a regular income, tax will then become applicable.
- Once you die, the home reversions company will receive their share of the house sale. IE: If they bought 50% of the house, they receive 50% of whatever the house is worth at the time of resale.
- You are able to draw down more money from your house by selling more parts at a later date.
- Plans will vary dramatically so it is advised that you shop around and ensure that you read and understand all the details. An Independent Financial Adviser will be able to assist with this.
Lifetime Mortgages:
- Are loans that are given and paid back once the house is sold, usually once the policy holder(s) has died or has moved into long term care
- Interest is accumulated on the loan from the time this commences until the house is sold and the loan is repaid
- As the interest on the loan accumulates it results in compound interest ie: you end up paying interest on the interest which has already been charged
- Most lifetime mortgages have a "no negative equity guarantee" this is offered due to the amount of interest gathering over the years of the loan
- You remain the owner of the home and reside there until death of the policy holder(s) or until the policy holder(s) moves into long term care
- Companies who offer this plan are regulated by the FSA
Download the Equity Release PDF Guide here - see our other free PDF guides here
Guide Contents
What is Equity Release?
The Different Types of Equity Release Plans
The Different Types of Lifetime Mortgages
Shopping Around for the best Equity Release Plan
Applying for an Equity Release Plan
Frequently Asked Questions About Equity Release Plans
Where to get more help and information about Equity Release
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