Equity Release: Lifetime Mortgage Versus Home Reversion
Faced with retirement on a pension of today's standards, lots of us are looking for a way to bump up the pot of cash we have access to in later life. If you're over the age of 55 and own your own home, equity release could help you gain a lump sum of cash, boost your monthly income, or provide a combination of both to help you to fund your lifestyle. According to research, the amount of people taking out a lifetime mortgage (a form of equity release) has risen by 17 per cent in the last three years alone.
Equity release allows older people to free up the money locked away in their property - usually their largest and most valuable asset. It is an alternative to taking on bank loans and credit cards in later life, when monthly income is often restricted. The cash released can be used for anything from home improvements to health care; there are no limits on how you choose to spend it.
Equity release options
There are two types of equity release: lifetime mortgages and home reversion schemes. The two options vary in several areas. Use our expert guide to find out more about the difference between the two.
Lifetime mortgage: The minimum age is 55 or more usually 60, and the percentage of your property you can borrow will increase the older you are. At the age of 65 you'll find that you can borrow somewhere in the region of 20 to 25 percent of the value of your home.
Home reversion scheme: You can sell up to 100 percent of your property, and the older you are the more you will get. You may also achieve a higher value if you are in poor health.
Lifetime mortgage: You will continue to be the owner of the property and can live in it for as long as you choose, or until you move into a care home or pass away. The money you release is taken as a loan secured against your home and interest is charged. Usually, interest is only repaid when your property is sold upon your death or when you move into care..
Home reversion scheme: You actually sell a proportion of your property and therefore only retain the ownership of the percentage you choose to keep. You can, however, live in the property for as long as you wish – until you die or move into long-term care.
Either scheme provides the option to leave money to your heirs, but there will always be a reduction in the overall amount when you choose to embark on an equity release plan. One of the benefits of home reversion is that you can guarantee the portion of the property you haven't sold will be passed on to your beneficiaries.
Lifetime mortgage: There are no monthly payments required but you might choose to repay interest in order to reduce the amount owed when the plan comes to an end. This enables you to leave more to your family when you are gone.
Home reversion scheme: You are not required to make any monthly payments.
Considering equity release?
Equity release could provide the financial support you require to enjoy your life and live more comfortably in retirement. The first step is to contact an expert in the field to find out whether you qualify, and what would be the right scheme for your circumstances.
This article was written by Kate Fisher on behalf of RetirementExperience.co.uk, equity release specialists based in the UK.