Equity Release Plans |
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About the Plans There are two main types of plans that providers offer, which allow you to tap into the value of your home. These are called Lifetime Mortgage and Home Reversion plans. A Lifetime Mortgage lets you take out a loan based on the value of your home. This mortgage may be :
A Home Reversion plan lets you obtain money by selling your home to a reversion company. These reversion plans may be :
To see a list of all Providers and their Plans, click here How do the plans work? Home
Income plans let you raise money by taking out a loan secured
on your home, but some of this money must be used to purchase an
annuity. This annuity provides you with a regular guaranteed income
for the rest of your life. The idea is that part of this income
pays the loan interest and the remainder is yours to spend or save.
However, a combination of currently very low annuity rates and tax
changes (the dropping of MIRAS) means that these plans are not now
very popular except for those aged over 80. Click here to see a list of Home Income Plans and their providers. Interest-only mortgages allow you to take out a loan secured against the value of your home that pays you a cash lump sum. You pay interest on the loan, usually monthly, and the amount that you originally borrowed is repaid when your home is eventually sold. You should consider that if the plans interest rate is variable and your pension or other source(s) of incomes is fixed, then you may find it difficult to meet your repayments if interest rates rise. Click here to see a list of Interest-only Mortgages and their providers. Roll-up
mortgages let you take out a loan that is secured upon the value
of your home. A roll-up that provides you with a cash lump sum is
known lump sum roll-up mortgage. Another type of
roll-up is a drawdown mortgage, which allows you to take a combination
of cash and regular payments or simple regular payments, or even
just draw down as you need it, to spend or save as you choose. With
either a lump sum roll-up or drawdown mortgage,
there are no repayments to make whilst you are living in your home.
The interest simply rolls up, hence the term roll-up mortgage. The
mortgage is finally repaid when your home is sold, usually due to
moving into long term care or death. These plans are growing in
popularity, especially at the moment when interest rates are low.
You may choose to opt for a plan where the interest rate is fixed
or capped so that you’ll know the maximum amount of interest
that will be added each year. Use our Comparative Tables to quickly
sort out providers offering Roll-up Mortgages. Click here to see a list of Roll-up Mortgages and their providers. Shared Appreciation Mortgages are plans whereby you agree to let a lender take a share in the property and in return the lender gives up the right to receive some or all of the interest on the loan. This type of plan allows the lender to take a share in any increase in the value of your home when it is sold. Shared Appreciation mortgages have been offered in the past to younger people but since been discontinued (except for some Government funded plans to assist ‘key’ lower paid workers in cities like London). This is because they have caused problems in times of rapidly rising house prices, if people decide they want to move home after taking out a Shared Appreciation Mortgage. They have then found themselves left with insufficient equity to purchase another property. Therefore, for older people, this type of plan should only be considered if you absolutely wish to remain in your own home until moving into long-term care. Click here to see a list of Shared Appreciation Mortgages and their providers. Home
Reversion Plans let you sell all (full home
reversion) or part (partial home reversion) of
your home to a reversion company for a fixed amount of money. In
return, you receive a cash lump sum and/or a regular income. You
can live in your home for the rest of your lifetime without having
to repay the loan until the house is sold, usually upon moving into
long term care or death When your house is sold, the reversion company
receives the same proportion of the sale proceeds. If house prices
have risen in the interim period, both parties may benefit, according
to the percentage of the property that you have sold to them. If
you opt for a partial home reversion plan, it
may be possible to sell a further percentage of your home to the
reversion company at a later date. Use our Comparative Tables to
quickly sort out providers who offer Home Reversion plans. Click here to see a list of Home Reversion Plans and their providers. Please note that all reputable plan providers offer a simple guarantee called a No Negative Equity guarantee. For instance, if you took out a Lifetime mortgage plan and interest rates shot up and the rolled up mortgage then 'overtook' the value of your property, then that would not be a problem for you. The plan provider will absorb the loss. Similarly, if you sold 100% of your property in a Home Reversion plan and house prices collapsed, then again the plan provider will take the loss. This is the No Negative Equity Guarantee. It is automatically offered by all plan providers who are members of SHIP. Lifetime Mortgages will be regulated via the Financial Services Authority (FSA) from autumn 2004 and the Government has also decided that Home Reversion plans shall be regulated. The FSA exists to protect your rights. The next step to consider is Your Property.
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