What is equity release?

Equity release schemes are typically used by older homeowners – usually over 55 or 60. They allow you to release cash tied up in the value of your home.

The most common type of equity release plan is the lifetime mortgage. This lets homeowners borrow money that is then secured against their property.

With a lifetime mortgage, the borrower doesn’t have to make monthly repayments to the lender. Instead, the amount borrowed and the interest, is paid back after the sale of the property. Usually when the homeowner dies or moves into a residential care home.

Lifetime mortgage products vary between lenders. Certain products will release the equity as a single lump sum. While other products may allow smaller equity releases to be drawn down over time. Also, some products may offer the ability to make payments towards the accruing interest.

There is another type of equity release scheme, known as a home reversion plan. Home reversion involves selling a percentage of your home at a price below market value, to the plan provider. The percentage sold will be anywhere from 25% to 100%.

This is in exchange for a lump sum or a regular income, and in some cases a combination of both. With a home reversion plan, you can continue to live in your home without having to pay either rent or mortgage repayments. When the property is sold, the lender is then paid the corresponding percentage of the proceeds.