With the continuing growth of the equity release market there are an increasing number of people looking at equity release as an answer to their needs. To meet these needs, many new providers have entered the market with more innovative plans

This means that you have a larger, potentially more attractive, range of providers and plans to meet your needs. However, with greater choice comes greater need for expert advice to ensure that you select the correct plan for you and your circumstances

Here at Later Life Planning Experts we advise on the following equity release plans: –

  • Lifetime mortgage plan – a loan secured against your home typically with a fixed interest rate. This can be as a one off lump sum or by a drawdown lifetime mortgage plan, which allows you to access your money in smaller lump sums and only pay interest on what you have drawn down. There are further options available such as enhanced plans, protected plans, combined plans and interest payment plans
  • Home reversion plans– where a cash lump sum is paid in exchange for all or part of your home

The most suitable plan for you will depend on many considerations, including: –

  • Your property value
  • How much money you want
  • How quickly you want to raise the money
  • The age of all applicants
  • What guarantees you want, such as an inheritance guarantee
  • Your health and lifestyle choices

Comparing equity release plans

The table below compares the features of a lifetime mortgage plan and a home reversion plan

Feature                                                           Lifetime mortgage       Home reversion

Retain ownership of your home                     Yes                              No

Sell a share of your home                              No                               Yes

Receive a tax-free cash lump sum                 Yes                              Yes

Drawdown smaller lump sums                       Yes                              Yes

No monthly repayments to make                   Yes                              Yes

Option to make monthly interest payments   Yes                              N/A

Stay in your home for life                                Yes                              Yes

Interest accrues on the loan                           Yes                              N/A

The value of your estate is reduced               Yes                              Yes

“No negative equity” guarantee                      Yes                              Yes

Am I able to move property                            Yes                              Yes

Does this impact any state benefits               Yes                              Yes

Specialist advice should be sought                Yes                              Yes

Plan is repaid upon death or long-term care  Yes                              Yes

If you’re considering equity release we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail

Lifetime mortgage Plan

A lifetime mortgage plan is an open-ended loan secured against your home. It only needs to be repaid when you and your partner have both passed away or moved into long-term care. This will then be repaid when your property is sold

A lifetime mortgage plan usually has a fixed interest rate. If you take the money in one lump sum, interest accrues on the full amount from the day you borrow it – regardless of when you decide to spend the money. If you don’t need all the money straight away you should consider a drawdown lifetime mortgage plan, with interest being charged only on the amount that you have drawn down

How does it work?

• You retain full ownership of your home
• You take a tax-free lump sum from your property
• No payments need to be made as the outstanding loan amount is repaid when the plan comes to an end
• Interest accrues on the amount of money drawn down. This is added to the initial amount and then interest accrues on the increased loan amount. This is called compound interest
• Some plans offer guarantees, such as an inheritance guarantee which allows you to retain an amount for your beneficiaries
• Any house price rises over and above the amount you owe the lender could potentially benefit your estate
• The money can be used for any purpose that you choose

Things to consider

• The lender will take a first legal charge against your home. When the property is sold, any monies owing to the lender will be paid first with any surplus being paid to you or your estate
• You will not know how much of your property value will be left to your beneficiaries. However, you may be able to guarantee a percentage of the value as an inheritance guarantee
• Early repayment charges may apply if you decide to repay the loan
• If you wanted to increase your loan amount, then you would need to go through the application process again
• The value of your estate will be reduced, and it may affect your entitlement to state benefits

The different types of lifetime mortgage plans

Drawdown lifetime mortgage plan

This is a variation of the lifetime mortgage plan and works in much the same way. However, this allows you to draw down your total agreed loan amount in phases instead of taking the whole loan from the outset. This means that you are only charged interest on the amount that you have drawn down and not the whole loan amount

Protected plans

Certain lenders will allow you to build in an inheritance guarantee so that you can ensure that an agreed percentage of the property value can be left for your beneficiaries. Any guarantee that is chosen will reduce the maximum amount of money that can be released under your lifetime mortgage plan

Enhanced plans

If you or your partner have certain health conditions or make certain lifestyle choices, you could potentially release more money from your home

Combined plans

Flexibility within a lifetime mortgage plan means that you could potentially build in a combination of these options. This could enable you to not only save your estate money but also tailor your plan to meet your circumstances

Interest payment plans

An interest payment lifetime mortgage plan works in the same way as a lifetime mortgage plan, however you agree to make regular payments of the interest that accrues over the lifetime of the loan. This means that the initial loan amount does not increase if you maintain the regular monthly interest payments

If you’re considering equity release we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail

Drawdown lifetime mortgage plan

A drawdown lifetime mortgage plan is a type of lifetime mortgage plan that enables you to take the agreed loan amount in stages, as and when you want it

A drawdown lifetime mortgage plan allows you more freedom to release your money when you like. Your lender agrees to a maximum loan amount, which is set aside for you. You can then take an initial lump sum and then withdraw further lump sums when you want them (subject to minimum amounts)

You only pay interest on the money you have drawn down and therefore, you can save a considerable amount in interest over the lifetime of the plan

How does it work?

In addition to the features and benefits of a lifetime mortgage plan, the details of a drawdown lifetime mortgage plan are as follows: –

• You can reduce the interest costs of your plan by only taking as much money as you want at the time, subject to the minimum amounts set by the lender
• Your beneficiaries could end up with a greater inheritance, compared to if a lifetime mortgage plan is taken out
• These plans could provide you with more flexibility than a lump sum lifetime mortgage plan, meaning it can adapt to your needs as they change throughout your lifetime
• The money can be used for any purpose that you choose

Things to consider

• The lender will take a first legal charge against your home. When the property is sold, any monies owing to the lender will be paid first with any surplus being paid to you or your estate
• You will not know how much of your property value will be left to your beneficiaries. However, you may be able to guarantee a percentage of the value as an inheritance guarantee
• Early repayment charges may apply if you decide to repay the loan
• If you wanted to increase your loan amount, then you would need to go through the application process again
• The value of your estate will be reduced, and it may affect your entitlement to state benefits

If you’re considering equity release we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail

Home reversion plan

A home reversion plan is very different to a lifetime mortgage plan

A home reversion plan allows you to exchange the ownership of all, or a share, of your home to the reversion company in exchange for a cash lump sum. This cash lump sum will not be the full market value of your property as the reversion company grants you a lifetime lease which gives you the right to remain in your own home rent-free for as long as you wish

How does it work?

• You’ll need to be at least 65 years of age
• This plan provides you with a tax-free lump sum
• There are no payments to be made as the outstanding amount is repaid when the plan comes to an end
• These plans simplify your inheritance planning as you as you’ll know exactly what proportion of your property you’re able to leave as inheritance
• Your share of the property will benefit from any increases in house prices
• The money can be used for any purpose that you choose

Things to consider

• Although you don’t pay rent, you no longer own all your home
• Your estate will miss out on all of any house price growth
• The percentage of your home is sold for less than the open market value
• The value of your estate will be reduced, and it may affect your entitlement to state benefits
• If you pass away soon after taking out the plan, you may lose out

If you’re considering equity release we strongly advise that you read Is equity release right for you? or call one of our regional offices to discuss all your options in full detail

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