Equity release plans

If you have value in your home an equity release plan or home equity reversion plan can be used to either obtain a lump sum or a a regular monthly income. They are generally only available to those over 60 years old who own their home and have no mortgage.

What are equity release plans for ?

Equity release plans are designed to help you if you are at retirement age and own your home having paid off your mortgage. They are used where you wish to stay in your home but would like to sell part of it to generate a lump sum or a regular monthly income.

How do equity release plans work ?

In return for you giving the equity release plan provider a certain percentage of your home the plan provider will give you a lump sum of money or a regular monthly income. You will continue to own and will be allowed to live in your home until you die or have to move into a long term care home. At this time your home will be sold and the equity release plan provider will recover their debt.

How much money can I release from my home ?

This is directly related to your age and the value of your home. The equity release plan provider will estimate when they think they will be able to recover their debt through a sale of your home and also estimate its value. They will then work out what lump sum or monthly income they can provide to you today which after the addition of interest will be repaid at the future estimated date.

What are the pitfalls of equity release plans ?

These equity release plans are very complicated and are at present unregulated by the Government so you must take specialist advice from an Independent Financial Advisor as to the suitability of a plan and the terms that are granted.

You should ensure any equity release plan contains a negative equity guarantee which means that if the value of your home falls then so does the value of the plan debt. In this way you will guarantee that whatever happens your estate will not be left with a debt after the sale of your home.

Often equity release plans will not allow you to move home and transfer the plan to another property. If you live with a partner then the plan must be in joint names ensuring you are both able to live in the home for life. However as the equity release plan provider will not get their money back until both of you have left the home the amount you can borrow will be lower.

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