Equity Release Schemes Get You Income When You Need It

The market value of a home minus the debt and mortgage already held against it is the equity. What an equity release does is to allow you some of the cash value of that equity without needing to move out of the home and, in many cases, without selling any of it. There are two main types of equity release schemes.

These two types of schemes are called lifetime mortgages and home reversion schemes. You must be a certain age to be able to take part in an equity release. The exact age requirement can vary with the company you use but it is usually over 55 years old, sometimes more.

Home reversions plans involve you selling at least a part, possibly all, of your home. This can be to either an individual or a company. You are normally paid out in one lump sum. Afterward, you continue living in your home free of charge or with a very tiny fee. You can stay there until you move or until your death. The amount you can get will be dependent on a number of factors such as your age at the time of the deal.

There are a few different types of lifetime mortgage plans. In each case, however, you still own your home. You borrow money against the value of your home and continue to make your mortgage payments.

The first type of lifetime mortgage plan is called the Roll-up Plan. You can receive your loan in either a lump sum of cash or as a regular monthly payment. Interest is added to the loan but not paid until the home is actually sold either when you move out die.

The interest will accrue on the loan and all prior interest so when you take the loan in a lump sum, it adds up fast. With the drawdown version of this plan, the money is taken out in smaller regular payments or only as needed. This way, the debt does not grow as quickly.

Drawdown equity release mortgages are amongst the most popular as they can significantly reduce the rolled up interest that would otherwise be added to the loan. A minimum initial lump sum of between 10,000 and 25,000 is usually set by the equity release provider.

With an interest only lifetime mortgage it can be possible to agree at outset a defined length of time that interest will be payable for, before the loan reverts to having the interest roll up against the loan. This is often considered by those below the age of 60 - 65 who are still able to afford the interest payments in the short term, but wish to have the security of fixing their lifetime mortgage rate now.

Home income plans also involve being paid in a lump sum but this is used for purchasing an annuity to provide a regular income. The income is then used partially for paying the interest which is usually at a rate that is fixed. How you use the remaining income is at your discretion. When your home is sold, the loan is paid off. This type of plan is more advantageous if you are older rather than recently retired.

There are a lot of factors to think about when engaging in an equity release. Be sure that you understand all the terms involved. It is a good idea to get some expert advice before you commit to one of them.