Types of equity release scheme

There are two categories of equity release plans, both of which our specialists at Bower Retirement Services are fully qualified to advise you on. These are a Lifetime mortgage and a Home reversion.

The most suitable plan for you will depend on a number of deciding factors:

  • How much cash you wish to access
  • The value of your property
  • Whether you want all the money right now
  • The ages of you and your partner (if applicable)
  • If you wish to guarantee an inheritance for your loved ones
  • Your health and lifestyle (see ‘How much equity can I release?’)

The best way to discover which type of plan is best for your individual needs and circumstances is by arranging a free, no-obligation consultation in the comfort of your own home with one of our expert advisers. Call free phone 0800 411 8668 today.

Lifetime mortgage

Where the provider lends a percentage of your property’s value. You are charged interest on the loan but unlike an ordinary mortgage, you do not need to make any monthly repayments (although this is an option if you wish to) and there is no set term. There are a number of flexible options available with this type of plan which you can learn about here.

A lifetime mortgage enables you to unlock tax-free cash from your property without the need to make any monthly repayments. The provider lends a percentage of your property’s value and you are charged interest on the loan. Whether you repay all, some of none of the interest over the life of your plan is decided by you when you take out your plan.

With all lifetime mortgages, the loan plus interest continues until the plan comes to an end, usually when you pass away or move into long-term care. At this point the property is sold to repay the original sum borrowed plus any interest that has accrued.

If you select a lifetime mortgage then there are a number of flexible plans available that can be tailored to your individual needs and circumstances – your specialist adviser will be able to discuss all of these with you during your free, no-obligation consultation.

  1. ‘Lump Sum’ Lifetime Mortgage
  2. ‘Drawdown’ Lifetime Mortgage
  3. ‘Interest-payment’ Lifetime Mortgage
  4. ‘Enhanced’ Lifetime Mortgage
  5. ‘Protected’ Lifetime Mortgage

  1. Lump Sum Lifetime Mortgages
    • A plan where you take all the money you wish to unlock in one go.
    • Usually a lifetime mortgage has a fixed interest rate, so as you receive all the money in one lump sum, interest starts to accrue on the full amount from the day you borrow it.
    • If you don’t need all the money straight away you should consider a drawdown lifetime mortgage.

  2. Drawdown Lifetime Mortgage
    • These plans work much in the same way as above but with a cash reserve / drawdown feature.
    • Enables you to withdraw further funds as and when you choose up to a specified amount of years, or until the cash reserve has been used up. Interest is only charged on the total amount you have withdrawn, so it can save you a significant amount in interest compared to a Lump Sum plan
    • Interest is added to the loan each month and no repayments are required during your lifetime. Interest is only applied to the initial cash lump sum taken and when further withdrawals are made in the future.

  3. Interest-payment Lifetime Mortgages
    • Interest-payment lifetime mortgages work in the same way as a lifetime mortgage, with the flexibility that you are able to make one-off or regular payments on the interest that accrues over the life of the plan.
    • With some plans you can pay some of the interest and have the remainder rolled up or only pay the interest for a chosen term.
    • Some form of monthly income is required to meet the interest payments on this type of equity release plan and eligibility is subject to credit status and meeting affordability criteria.

  4. Enhanced Lifetime Mortgage
    • Release a larger percentage of your home’s value based on existing / pre-existing health or lifestyle conditions.
    • Over 100 conditions qualify customers for a larger cash release from their home as the lender assumes a shorter lifespan.
    • Conditions include high blood pressure, diabetes, cancer, angina, kidney disease, and dementia.
    • Lifestyle conditions such as a history of smoking or a high/low BMI can also qualify.
    • No medical necessary, your specialist adviser can find out for you if you might qualify for this type of plan.

  5. Protected Lifetime Mortgage
    • With some lifetime mortgages you can guarantee an inheritance for your loved ones.
    • Choose a fixed amount or percentage of your home that is guaranteed to be left to your beneficiaries when your plan comes to an end.

Home reversion

Where you sell your home or a percentage of it in exchange for a discounted lump sum or monthly income, or a combination of both. You can stay in the property for life or until you wish to sell it, at which point the provider will reclaim that percentage of the sale price. Because you are selling all or part of your home, there is no build-up of interest.

Home reversion plans also enable you to unlock cash from your home without the need for any monthly repayments, but they do work differently to Lifetime Mortgages. With this type of plan you sell your home or a percentage of it to the reversion company, in exchange for a lump sum or monthly income (or a combination of both).

It is important to note that the ownership of the property reverts to the reversion company and you will not get the full market value for your house. This is because the reversion company is effectively granting you the right to remain in property for the rest of your life ‘rent-free’.

So how does it work?

If you sold half of your property to the reversion company, when the plan comes to an end (usually when you pass away or move into long-term care) then the money raised from the resulting sale of your home would be split equally between the reversion company and your estate.

Some customers choose a home reversion because:

  • The percentage of the property that you continue to own will still benefit from house price increases
  • There is no interest to pay at any point
  • You have the security that unless you decide to sell a larger percentage of your home to the reversion company, your percentage amount will never change.

Points to consider about a home reversion:

  • You will no longer own your own home
  • If your house value increase then you only benefit from the increase to the percentage that you still own.
  • You receive less than the market value of your home for the percentage that you sell.
  • As you are selling part of your home it can be very difficult to end the plan and buy back the percentage you sold, so it is less flexible than a lifetime mortgage.