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Equity Release Schemes

Lifetime Mortgage Home Reversion

Finding the proper equity release schemes for you and your situation is important. There are multiple schemes available, but not every product on the market is going to fit your needs. The market is extremely vast because there are homeowners with different requirements. It may take some time to find the proper equity release plan for you, but there will be one out there that is worth considering either now or in the future.

Comparing Plans
The following page and much of this website is about helping you, as a homeowner, to compare the different retirement plans available to you. The concept of these schemes is to help you when you are property rich, but in a cash poor position. It means you have assets, you just do not have access to quick cash.

When you consider the various plans, you want to examine the pros and cons of each type of equity release scheme available to you. For this you also need to know the main types of plans and their sub-types. There are different articles available on this site to explore the two main types in detail, plus the five sub-types.

For now what you need to know is more about the two main types as a means of determining which might be a better fit as a means of starting your comparison.

Home Reversion
This is one of the oldest types of retirement mortgages dating back to the 1960s. The concept of home reversion is for you to sell a part or your entire home to a home reversion provider. You determine how much you are willing to sell of your home based on their qualification criteria. Some may allow you to sell only 30% of your home, whereas others want at least a 50% stake in the home.

In return for selling your home you will receive a certain percentage of home value. It is not the entire amount that the 30% or 50% you sell is worth. For example, if your home is worth £200,000 and you sell 50% you would not receive £100,000. You would receive a percentage of the value based on the current market value less your age. Your life expectancy is used to determine how long the home reversion provider’s return on investment might take. Someone who is older will have a lower life expectancy, which means they can obtain more in home value than a younger individual.

The main benefit to this type of equity release scheme is no repayment ever. The home is sold to account for the funds provided, so there is no interest compounding onto the capital sum provided to you. It is tax free money offered in a lump sum.

Lifetime Mortgages
Lifetime mortgages are different than home reversion. They were designed for individuals who were not comfortable selling their home in full or part to a finance company. The tax free lump sum option is the same in terms that you receive cash for equity accrued in your home. The difference is that a repayment is required. There is compounding interest with a capital sum to be repaid.

The sum awarded is based on a loan to value percentage (LTV) which is determined by age and property value. Again the percentage of equity you receive is not the full value of the home but a percentage based on how long you are expected to live based on your current age and average life expectancies.

The amount of equity released to you is not the full amount because the compounding interest is not repaid until your death or you leave the home for long term care. If you took out 100% of the home in a capital sum and then had 20 years of interest the home appreciation may not cover that full amount. Providers of lifetime mortgages are in the business of making money on a long term investment. This means they want a return on their funds given to you. It is through the interest rate that they get this money; therefore the capital sum has to be lower than the full home value to account for the interest repayment.

When the home is sold for current market value the capital sum plus all accrued interest is repaid. If any funds are leftover that is given to you or your beneficiaries.
As you can see there are two main types of home equity release schemes. Now that you have a brief introduction you can begin your search for the right product and compare the plans currently on the market.

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