The number of equity release plans available has increased significantly in recent years to keep up with growing demand. While there are hundreds of product options to choose from, there are just two main types of equity release – lifetime mortgages and home reversion plans.
What is a lifetime mortgage?
A lifetime mortgage is a type of equity release plan whereby you borrow money secured against the value of your property. With a lifetime mortgage you retain ownership of your home and you do not need to make monthly mortgage repayments. When you die or move into long-term care the property is sold and the money from the sale is used to repay the loan plus interest.
What is a home reversion plan?
A home reversion plan is where you sell part or all your home to a lender in return for a cash lump sum or regular payments. You will typically receive between 20% and 60% of the market value for your home, or for the part you sell. Generally, the older you are, the higher percentage of market value you will receive. Importantly, you will no longer own your home, but you can live there rent-free until you die or move into long-term care.
With a home reversion plan there is no interest to pay because it is not a loan, you are selling your property in exchange for accessing a percentage of the equity. If you sell 100% of your property and it increases in value, you will not benefit from that growth. If you still own part of your home and it increases in value, you will only benefit from a percentage of that growth relative to the proportion you still own.
Lifetime mortgages are more popular than home reversion plans because they offer far more flexibility and options for homeowners during later life.
What are the different types of lifetime mortgages?
There are many different types of lifetime mortgages to suit individual circumstances including:
- Lump sum lifetime mortgage – release the maximum amount of equity in one tax-free cash lump sum.
- Drawdown lifetime mortgage – release smaller sums of money over time as and when you need it. This option helps to reduce the amount of interest payable as interest accumulates only on the cash you have released.
- Interest-only lifetime mortgage – make monthly interest repayments to keep the debt to the amount originally borrowed or make overpayments to reduce the overall debt and retain as much equity in your property as possible.
- Voluntary repayment lifetime mortgage – pay some of the interest, all the interest, or more than the interest as and when you like. You are not obliged to make payments; you can stop and start at any time. When you stop making payments the interest will be added to the loan. Learn more about voluntary repayment lifetime mortgages here.
- Enhanced lifetime mortgage – access as much equity as possible based on your health. Lenders typically allow people in poor health to release a greater percentage of equity.
Compare the different types of equity release plans
|What would you|
like to do?
|The type of plan that
might be suitable
|Guarantee an inheritance for my family|
|Pay the interest monthly to reduce the overall debt||
Interest payment Lifetime mortgage
|Reduce the size of the loan on which interest is charged||
Voluntary partial repayments Lifetime mortgage
|Have flexibility to move home in the future without penalty|
|No interest added on money released|
|Take the maximum amount possible|
|Take some now and have more to come back for if I need it|
|Use my health conditions to get me more money|
With so many options to choose from it is best to speak to an Equity Release Specialist who can recommend the most suitable plans based on your individual circumstances.
At Personal Retirement Planning we have the knowledge and experience to guide you through the equity release process, identify the most suitable options for you, and ensure you are able to make a well-informed decision.
We work with several lenders that we implicitly trust to provide their best deals and premium products to our customers.
If you would like to speak to one of our friendly advisers to understand your options, please submit your enquiry below and we will be in touch shortly.