Which equity release scheme is right for you? And how do equity release plans work anyway? Let’s see how you could unlock tax-free cash from your home…
It’s all about you
There are lots of different equity release plans available today – each with their own features and benefits. Whichever one you choose, you’ll be able to access to tax-free cash without having to downsize. This goes to pay off your existing mortgage first (if you have one), and then the money is yours to spend as you like. Perhaps it’ll top up your pension in retirement, or maybe you’d like to see your family enjoy some of their inheritance during your lifetime – it’s up to you to decide.
Everyone’s different, so the right option for you all depends on your circumstances. Like how much equity you need to release, your age and health, and whether you’re prepared to sell off some (or all) of your home. But we’re here to shed some light on the most common equity release plans on offer.
The first thing to know is that there are two main equity release schemes to choose from: lifetime mortgages and home reversion plans. Read on to find out more…
This is the most popular kind of equity release scheme – and it lets you unlock a tax-free lump sum from the equity (or value) tied up in your property. Basically, it’s a loan secured on your home – and you retain ownership of your property.
Unlike a typical mortgage, there is no need to make any monthly repayments. The loan and accrued interest will be repaid when your home is sold in the future (when you pass away or move into long-term residential care) – and your family will still be able to benefit from any increases in your home’s value. Here’s a brief run-down of some of your options:
- Roll-up lifetime mortgage – get a cash lump sum with nothing to pay back until your home is sold
- Drawdown lifetime mortgages – you can take, or ‘draw down’ an initial lump sum and withdraw smaller amounts when you need
- Flexible lifetime mortgage – allows you to make voluntary repayments if you wish to reduce your mortgage loan amount
- Enhanced lifetime mortgage – designed for those with medical conditions, this allows you to unlock even more cash from your home
Don’t worry – you’ll never owe more than your property is worth
You can rest assured that the amount you owe will never exceed the value of home. And you won’t leave your family with a bill to pay when you pass away. The Equity Release Council’s codes and standards are in place to prevent this from happening.
Home reversion plans
This is another common type of equity release scheme that could be available to you. Home reversion simply means selling a part or all of your home to your equity release provider and getting a cash sum in return. You can get it in regular instalments or a single lump sum – it’s up to you.
Usually, this kind of plan enables you to raise a bigger amount than you would with a lifetime mortgage. And even though some or all of your home will belong to your equity release provider, you’ll have the freedom to stay in your home rent-free – for the rest of your life, or until you go into long-term care.
There’s absolutely no interest to pay
Home reversion plans aren’t loans, and that means you won’t have any interest to pay. When your property is eventually sold, your equity release provider will take the proceeds of the percentage that it owns. And anything left over will go to you or your estate.
That said, it’s worth bearing in mind that if your home increases in value over time, you’ll only benefit from the increase in value of the proportion you still own.
A few key differences...
Just to make things easier, we’ve put together a table below to show you a few key differences between equity release schemes.
One of the main things to bear in mind is that a lifetime mortgage means you’ll still own your own home. Meanwhile, a home reversion plan means you’ll sell a share of your home in order to release cash from your house.
|Lifetime mortgage||Home reversion|
|Unlock tax-free cash from your home by taking a loan against your home.||Unlock tax-free cash from your home by selling a share (or all) of your property to your equity release provider.|
|You still own 100% of your home.||You could still own a proportion of your home, and live there rent-free.|
|You don’t need to make monthly repayments – interest is simply added to your loan.||No monthly repayments – and no interest to pay.|
|The interest is usually added to the mortgage – then the loan plus interest is repaid when your home is sold.||When your property is sold, the provider will take back the percentage they are owed.|
|Fees could apply if you choose to pay back the mortgage early.||If you decide you’d like to buy back the share of the property you sold to your equity release provider, then you’d have to pay the full market value.|
What else do you need to know?
Before making any final decisions about equity release, it’s a good idea to talk it through with your family. That’s because, whichever type of equity release scheme you go for, it will reduce the amount you may leave behind as an inheritance. Equity release may also affect your entitlement to state benefits. Find out more in our handy equity release guide.
Equity release can be a valuable way to increase your income in retirement, but it isn’t always the right solution for everyone. It’s always best to talk through your options with a professional equity release adviser – they’ll be able to answer your questions and help you decide whether it will work for you.
SunLife offers a range of straightforward and affordable products including over 50s life insurance, funeral plans, life insurance, equity release, pet insurance, home insurance, car insurance, ISAs and Will writing services