An equity release loan allows people over the age of 55 to receive some of the equity built up in their property while still living in the property. This money can help people who are no longer earning a regular income and are not able to meet their daily expenses or have outstanding debts to pay.
With an equity release loan, you can extract money from the equity of your home either in a lump sum or through a series of instalments. You won’t have to move house to do this, and you can spend the money however you see fit as there are no stipulations regarding how the money should be used. The equity release loan is an umbrella term to describe the two main forms of loans – Home Reversion Plans and Lifetime Mortgages.
Home Reversion Scheme:
A Home Reversion Scheme differs from a Lifetime Mortgage in that you actually sell a percentage of your property to the reversion company. There is no interest charged on the loan, but when you die and sell the house the reversion company will take the profit of the portion it owns.
Lifetime Mortgages:
When you take out an equity release loan in the form of a Lifetime Mortgage scheme, you are able to borrow money secured against the value of your property. You are able to live in this property until you die or go into care and sell your home. This money can be paid out as a regular income, lump sum, or a combination of the two. There is interest on the loan, but this is added to the value of the loan, meaning that the original loan amount will not increase. The interests and loan will be rapid when you die and sell your property. One downside is that you don’t know how large your loan will become as you cannot predict when you will die.
This may sound like an ideal solution, but there are disadvantages to taking out an equity release loan and it is in your interest to find out whether using an equity release loan is the right action for your unique circumstances.