Different Equity Release Schemes to Own a House

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by: Nicola Woodell
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Word Count: 536
Date: Sat, 27 Nov 2010 Time: 1:24 AM

The world entirely has been to economic recession and not even made reverse changes so far. UK citizens specifically are towards second thoughts today whether to retire as soon as they hit the right age. Many of you are rethinking this decision because we don’t want our family to be left empty-handed. These accountabilities are leaving us with no choice. This is a big cross for us to carry since retirees are expected to enjoy their retired years and spending their hard earned money. However, today we have left with choices of equity release. If you are aged 55-95 and wants to own your own home this is the best way to get your feet on. There are currently three types of equity release schemes; lifetime mortgage scheme, home reversion plan and a drawdown lifetime mortgage.

They all allow you to release cash from your home without the worry of the monthly repayments. For free you can receive a rough guide of how much you could potentially release from your home via an equity release calculator.

Here is a brief overview of the schemes.

Lifetime Mortgages: This type of plan allows you to borrow money from the provider and the loan is secured against your home. You can remain in the home and remain the legal owner for as long as you wish. No repayments are needed to be made. The provider takes a percentage, which is a fixed rate, when the property is sold. This is usually when you die or if you move into long term care.

Home Reversion Plans: A home reversion plan simply means selling all or part of your home in return for a cash lump sum or income. When the plan ends, most often when you die or move into long term care, the reversion company sells the property, takes its cut and pays what is left, providing you didn’t sell 100 per cent of your estate. Until then you can live in your home for rent free. Because you are not paying significant rent the reversion company does not give you the full market value for the part you sell. For example, if you sold the whole property, you would typically receive 35-65 per cent of its value, dependent on your age. If you wish to buy it back you will need to pay the full market value of that portion.

Drawdown Lifetime Mortgages: Drawdown lifetime mortgages are more flexible for people looking to release money from their homes. Instead of taking out a lump sum up front when you start the plan, you agree a total loan amount with the lender but take the cash as and when you need it. After the initial loan amount, there is usually a minimum instalment, you have to take. In most cases this is £2,000-£5,000. The advantage of this is that you only pay interest on the money you take rather than on a whole lump sum. It also removes the hassle of having to go through the process again if you decide to take more money out instead of paying all the costs involved a second time.

About the Author

Rachael Niklas is the author of this article on Equity release . Find more information about Equity release calculator here.

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