Equity release plans
There are two types of equity release plan: Lifetime Mortgages and Home Reversions. They share a number of common features between them, but with a few important differences.
A lifetime mortgage is the most common type of equity release plan. You retain full ownership of your home whilst unlocking a cash lump sum from it, which isn’t due to be repaid until you and your partner pass away or move into long-term care.
If you choose a typical plan where you don’t make any interest payments, the interest on the loan is added to the original amount borrowed on a roll up basis, this is known as compound interest.
There are a few options available with a lifetime mortgage which you can discuss with your adviser:
- Lump sum lifetime mortgage: Allows you to release a cash lump sum from your home. The loan is secured against your home and interest accrues on the lifetime mortgage. The loan, plus the compound interest is paid back in full when the property is sold.
- Drawdown plans: Enable you to take an amount initially, then draw down smaller amounts as and when required. Since you only pay interest on the money you’ve taken, the overall cost can be considerably lower.
- Enhanced plans: If you or your partner have any qualifying health conditions or lifestyle choices you may be able to release more money. There are a wide range of health conditions and lifestyle choices including high blood pressure, diabetes or a history of smoking.
- Protected plans: If you want to guarantee an inheritance for your family this is possible with these flexible plans. It’s a way of ensuring that there will be a percentage of the property’s future value left as an inheritance when the property is eventually sold.
- Interest payment plans: Allow you to make regular payments on the interest that accrues over the lifetime of the loan, so the effect of compound interest on your estate is lessened or prevented completely.
As impartial advisers Key can arrange a combination of the above options tailored to your current and future needs.
A home reversion plan works differently to a lifetime mortgage as you sell all or part of your property to a reversion company in exchange for a cash lump sum. You can still stay in your home for life and have no monthly repayments to make.
You won’t get the full market value for your house because as part of the exchange the reversion company grants you a lifetime lease on the property. This gives you the right to remain in your home “rent-free”.
If you already have an equity release plan then it might be worth speaking to Key to find out if they could get you a better deal. Interest rates have dropped over the last decade, so by switching to a more competitive rate you could save thousands on the interest yet to accrue on your plan.
As your age will have increased since you took out a plan, you may be able to unlock a larger percentage of your home now than you were able to before. Plus, with flexible new plans arriving on the market in recent years you may benefit from switching to a different type of plan than you chose originally. For example, you might have been in perfect health five years ago, but if you have a health condition now then you may be able to access more money from your home with an enhanced plan.
Whether you took your existing plan through Key or not, if you decide to swap then their expert advisers can take care of the whole process for you from start to finish; ensuring you have a hassle-free experience that could potentially save thousands over the life of your plan. For a free review of your situation call the team today on 0808 156 2674.
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If you are considering equity release we recommend that you read through is it right for you? carefully.