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Types of equity release?

Equity release allows you to release tax-free cash tied up in your home.

Lifetime Mortgage

A ‘lifetime mortgage’ is by far the most popular product in the equity release market as it enables you to continue to own 100% of your home whilst also releasing a lump sum of tax-free cash from the value of your property. There is no requirement to make regular monthly repayments as the equity that you release, plus any fixed interest accrued, is repaid when your property is sold. This happens when either you or your partner die, move into long-term care or permanently leave the property without purchasing another home.

Clear Planning works with the leading lenders across the whole of the equity release market which enables us to find the most suitable lifetime mortgage plans for each and every one of our customers whilst meeting their individual lending requirements.

Benefits

  • The cash you release is tax-free and can be spent as you wish
  • You retain full ownership of your home
  • You benefit from any future house price rises
  • There is no requirement to make monthly repayments to cover the interest
  • The ‘no-negative-equity’ guarantee ensures that you can never pass on debt to your estate
  • No more monthly repayments for your mortgage as it is a condition that you pay off your mortgage with the money you release from your home

Things to consider

  • The size of the lifetime mortgage will grow over time. This is because interest is accrued on the original loan amount and it continues to roll up as future interest is added
  • It may not be possible to release further equity from your home
  • The amount that you will leave as an inheritance will be reduced and may affect your entitlement to state benefits as might your options for moving or selling your home in the future
  • If you wish to pay off the equity release plan early, you may have to pay an early repayment charge (these can differ from plan to plan)

Drawndown Lifetime Mortgage

This is similar to the standard lifetime mortgage, however, with the drawdown lifetime mortgage, you can access your money in stages as opposed to receiving a one-off lump sum. This allows you to access the money as and when it suits you (subject to minimum amounts). Furthermore, you only pay interest on the cash that you have taken which can make these plans more cost-effective.

Benefits

  • The cash you release is tax-free and can be spent as you wish, such as making home improvements, buying a new car, supplementing your retirement income and much more
  • There are no monthly repayments to make as no interest is payable
  • You can benefit from any future increase in the value of your property from the proportion you retain
  • The older you are, the more money you will generally be able to release
  • You can typically raise a larger sum from your home with a reversion plan than would be available with a lifetime mortgage
  • Plans are portable which means it is possible to move home in the future
  • You can remove your home entirely from your estate in terms of inheritance tax
  • You know at the outset what share of your home you will be leaving to loved ones in your estate
  • You are able to guarantee an inheritance with the remaining part of the property
  • Plans can allow you to protect an inheritance for your family

Things to consider

  • If you sell 100% of your property, there will be no property value to leave to your beneficiaries
  • Although you don’t pay rent, you no longer own 100% of your home
  • Your estate will miss out on some share of any house price growth
  • There is no scope to return for further funds in the future when you sell all of your property
  • If you die shortly after taking out a home reversion scheme, your estate will receive less as the full market value is not given at the outset
  • It’s expensive to reverse – the property would have to be purchased from the reversion lender at the full market value
  • A home reversion plan will reduce the value of your estate and may affect your entitlement to state benefits
  • Not available to anyone under the age of 65
  • If you wish to buy back the proportion of your house you sold then this would have to be bought back at market value and not at the discounted rate you sold it for
  • If you pass away soon after taking out the plan, you have effectively sold your property cheaply. However, some plans do have provisions in place so that you’re protected