Types of equity release
There are three FSA regulated ways of releasing equity from your property:
Standard Home Reversion Plans
Retirement Plus Home Reversion Plans
> Lifetime Mortgages
Here we look at the pros and cons of Lifetime Mortgages. For peace of mind, choose a SHIP member provider for your equity release needs. To understand the features and risks of any equity release scheme, ask your financial adviser for a personalised illustration. Lifetime mortgages
The lender gives you a lump sum or monthly income (or both). You pay nothing – the interest is ‘rolled up’ into the loan. The amount borrowed plus this interest is repaid out of the proceeds from the sale of the property after you die. How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow.
Pros
- No interest payable while you are alive, so you will get a higher income for the same sized loan than with an interest-only mortgage or home income plan
- Most loans are fixed-interest, so reducing uncertainty about how much you will owe
- Plans are available to people as young as 55
- Drawdown or staged payment options are common
Cons
- Interest can mount up quickly and will further reduce what your family will inherit
- Your family could end up with nothing from the sale proceeds even though the lump sum you were lent only seemed a fairly small proportion of the home’s value at the start
- Property values may go up or down but the interest rate you agreed at the start on the loan is still payable and keeps accruing
- You may not be able to get a top-up loan later
- You may have to fund a retirement period of over 35 years if you take out a plan at 55
- Drawdown facilities are not guaranteed by all providers
- Generally, less money is available than you’d receive with a home reversion plan
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General information about financial services is available from the Financial Services Authority (FSA). The FSA is an independent watchdog set up by the government to regulate financial services and protect your rights. It provides free and independent information about equity release on its website at moneymadeclear
Retirement Plus is authorised and regulated by the Financial Services Authority.