There are four different types of regulated equity release:
- Lifetime Mortgage
- Flexible Drawdown Lifetime Mortgage
- Interest Only Lifetime Mortgage
- Home Reversion Plan
Lifetime Mortgage
With a lifetime mortgage, you borrow a percentage of the value of your property. Interest does need to be paid on the loan but it’s not like a standard mortgage, there’s no set term and you don’t need to make any monthly repayments unless you opt for an interest only lifetime mortgage, in which case you pay the interest each month.
Interest Only Lifetime Mortgage
An interest only lifetime mortgage leaves the amount borrowed as it is – i.e. it doesn’t grow as you are paying the interest each month, so you and your family know how much will be owed when the house is eventually sold. Naturally you will need some form of monthly income to cover the payments on this type of equity release plan.
With all lifetime mortgages, the loan carries on until you leave the property and then that’s when the original amount borrowed needs to be repaid, together with any interest if you have opted for a standard lifetime mortgage.
Flexible Drawdown Lifetime Mortgage
A flexible drawdown lifetime mortgage follows the same pattern but it also offers the option of a cash reserve from which you can withdraw amounts as and when needed until the reserve has been used up. Normally you will release a small initial lump sum of around £10,000 and then sums as low as £2,000 can be taken.
Home Reversion Plan
Home reversion plans involve selling a percentage of your property in exchange for a lump sum or monthly income, or both. Once the property is sold the provider will take back the percentage they lent you. There’s no interest build up with a home reversion plan.
Your circumstances and preferences will dictate whether you opt for a lifetime mortgage or home reversion plan but the vitally important thing to remember is to take independent advice from an FCA regulated equity release specialist; one that has access to every provider on the market and who is well known for their in depth advice process and examines all the alternatives for you before making a recommendation on whether a lifetime mortgage or home reversion plan is the best course of action for you.
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, please ask for a personalised illustration.
Bower is an FCA regulated independent financial advice company that offers specialist advice on equity release throughout the UK. For more information email customer.services@bowerretirement.co.uk or call 0800 411 8668
