Types of equity release

What types of equity release are there?

If equity release sounds like a good option for you, the next step is to understand the two different types and decide which one will suit you best.

There are two types of equity release that allow you to access the value in your home:

• Lifetime mortgage – a long-term loan secured against your home
• Home reversion plan – when you sell all or part of your home but keep living there.

What is a lifetime mortgage?

Much like a traditional mortgage, a lifetime mortgage is a loan secured against your home which accumulates interest each month.

How does a lifetime mortgage work?

Unlike a traditional mortgage, with a lifetime mortgage you don’t make monthly repayments. Instead, the interest is rolled up and compounded – that means you’ll pay interest on the interest (unless you decide to make full monthly interest payments).

The mortgage ends when you, or the last borrower if you’ve taken out a joint mortgage, die or move into permanent long-term care. The loan and interest are then usually paid back from the sale of your property. Because of this, lifetime mortgages will reduce the value of the estate you leave behind.

What is a home reversion plan?

With a home reversion plan you sell part or all of your home to a provider in return for a cash lump sum or regular payments. You then stay in your home rent-free for the rest of your life.

Home reversion plans are much less popular than lifetime mortgages, and aren’t something Saga Equity Release offer.

What’s the difference between a lifetime mortgage and a home reversion plan?

With both types of plan, you stay in your home until you (or the last borrower if you have a joint mortgage/plan), dies or goes into permanent long-term care. The main difference is who owns your home.

• With a lifetime mortgage you still own it, but will owe the mortgage provider the money you’ve borrowed, plus interest.
• With a home reversion plan, the provider you sell to will own part or all of it.

How do you decide which type of equity release is right for you?

Start by talking to a financial adviser to make sure you understand the pros and cons of the two different types. Equity release in either form could also affect any means-tested benefits you get, so you should check this too before deciding to go ahead.

The Saga Equity Release service includes a check to see if releasing equity could affect any benefits you currently receive. Your adviser will also explore the alternatives to equity release. You will need to be 55 years old or over and own a UK property worth at least £70,000.