People who are considering equity release can choose from three main equity release schemes. These include the lifetime mortgage, the interest only lifetime mortgage and the home reversion plan. In order to determine which equity release plan is the right one for you, you need to know the difference between each plan.
The home reversion plan allows homeowners to sell all or a part of their home to a home reversion company at a discounted price. This price is normally between 20 – 60% of the current market value of the property. By signing a document called a lifetime lease, you will be legally allowed to remain in the property until your death or the death of your spouse. During this time, you will not be required to pay rent but you will still be responsible for taking care of the property and making sure it remains in good condition.
Once you die, your property will be sold and the home reversion company will receive its share. If you sold all of the property, all of the sales proceeds will go to the home reversion company. If you sold only a percentage of the property, the home reversion company will receive only a percentage of the sales proceeds.
Lifetime mortgages do not involve the selling of the property. Instead, you are allowed to use the property to obtain a loan which requires repayments only if you or your spouse dies. Most lifetime mortgages with the exception of interest only lifetime mortgages accumulate the interests which are repaid once the property is sold. In most cases, the interest charges are compound interest which simply means that you will be paying interest on top of interest. You will remain the owner of your property until your death and will be allowed to live in your property as long as you like. Most lifetime mortgages offer what is known as a no negative equity guarantee which simply means that the amount borrowed and the accumulated interest can never exceed the value of the property which means that you will never have to repay more than what you have.
The interest only lifetime mortgage is similar to other lifetime mortgages with the exception that you are required to make monthly repayments of the interest amount. This means that eventually only the amount borrowed will have to be repaid.
Each equity release plan vary which means that you will need to do sufficient research to make sure that you fully understand the details of each plan. If you want to be sure that you are choosing the best plan, you may want to hire an independent financial adviser.