What is it and how does it work?
There are two main types of plan, Reversion Plans and
Lifetime Mortgage Plans. Both types typically give a
guarantee that you may continue to live in your home for the rest of your
life, or until you leave your home permanently to go into care.
A Reversion Plan involves the sale of part or all of
your property to the reversion company in exchange for a lump sum. Most
plans require you to be at least 65 years of age (some reversion plans require you to be aged over 70).
A Lifetime Mortgage Plan* is a loan, secured on the
property. You may take the loan by way of a lump sum, a regular income, or
a combination of the two. The amount you can borrow depends on your age:
the older you are the more you can borrow. You make no repayments until
after death or quitting the property to enter long term care. In almost
all cases the lender issues a "no negative equity" guarantee,
which means whatever happens, you / your estate can never owe more than the
value of the property.
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It is important to remember that Equity Release plans may
be used to generate regular
(e.g. monthly) income as well as lump sums. However, not all lenders offer this income facility. Note: It is important to consider
the effect of an equity release plan, and the funds accessed thereby, on
any State benefits to which you may be entitled. This is particularly
important if such benefits are means tested, so it is vital to seek
professional advice from a qualified adviser. For example, there may be
other State benefits you may be entitled to claim, which might mean that
an equity release plan is not suitable for you.
Why do people
consider Equity Release?
-
Provide additional income
-
Raise capital
-
Holiday home purchase
-
Reduce IHT (inheritance tax)
-
Fund long term care
-
Provide lifetime gifts to relatives, for example giving a grandchild
a help onto the property ladder.
-
Pay for a dream holiday
-
Purchase luxury goods or anything else - there is no restriction on
how you use the funds.
"Significantly, many of
our clients have realised that Equity Release means that they don't have
to sell the home they love, in order to maintain their standard of
living."
Finally it is most important that you
discuss the idea of equity release with your family, especially if you are
thinking of leaving an inheritance behind when you eventually die. One of
the drawbacks of using a Lifetime Mortgage plan is that over time the
accumulated interest will reduce the value of your estate when the property
is eventually sold. This can significantly reduce the amount of money you
end up leaving to your family.
Examples:
The examples linked below show two
uses of Equity Release:
Example A: - Need for cash and additional
income
Example B: - Planning for
Inheritance tax ("IHT") Mitigation
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