There are two main types of equity release plans:
- ”Lifetime Mortgages”
- ”Home Reversion Plans”
Lifetime mortgages allow you to take out a loan on your property in return for a tax-free lump sum, a regular income, or a combination of the two. Much like a standard mortgage, the loan is secured against your property and you continue to own your own home. The amount you can release depends on a combination of your age, health and the value of your property. There are several ways a lifetime mortgage can work:-
Roll-up – where the interest is not paid back on a monthly basis to the lender but rolls up over time. The loan and the rolled-up interest are repaid either when your home is sold, on your death, or if you move into long-term care. There are no repayments to make during the life of the loan and both members of a couple are covered, so if one goes into long term residential care before the other, the other party can remain in the house until they either die or move into long term residential term themselves. You generally have the choice of receiving either a cash lump sum or money in smaller amounts as and when you want – this is called a Flexible Drawdown. Your choice of product will determine how quickly the interest grows on the loan. Taking a Drawdown product may reduce the total interest cost over time and prove more cost effective than taking out a large lump sum at the start.
Interest-only – where you pay monthly interest on the loan and the loan sum is repaid when the house is sold, on your death or if you move into long-term care. In some cases it is possible to pay monthly interest only on a loan and then roll this up when it is no longer affordable to make monthly payments.
Home reversions involve you selling all or part of your home to a company in return for a lump sum or a regular income while retaining the right to remain living there. When you die or move into long-term care, the provider will be entitled to its share of the property’s value at the prevailing market rate. The balance of the property that you didn’t sell goes to your estate.
The amount you can raise from a home reversion scheme depends on your age and the age of your partner but it tends to be between 35% and 60% of the market value of the property.
Care At Home Services are not qualified to give advice about which funding option might be most suitable for your needs. You should seek independent financial advice from a SOLLA registered advisor.
The Society of Later Life Advisers (SOLLA) was founded in 2008 as a not for profit organisation, to meet the need of consumers, advisers and those who provide financial products and services to the later life market. Their aim is to ensure that consumers are better informed about the financial issues of later life and can find a fully accredited adviser quickly and easily. SOLLA ensures that all the advisers on their website have fully satisfied all criteria to become an “accredited” adviser. This means peace of mind and assurance that the advice you are given is from financial advisers who have proved they have specialist knowledge of the sector.
Further information can be found on the following web sites:
We would like to acknowledge the support of specialist long term care funding advisors Baker Jenness Financial Management in the preparation if this guide. www.bakerjenness.co.uk