Equity release is a fast way for people who are property rich (homeowners who either own their property outright or have a minimal mortgage) to convert the equity that is locked into their property into cash. Equity release schemes are normally taken up by elderly people who would like to stay in their homes and raise extra capital for personal reasons.

The capital that is released from equity release schemes is normally tax-free and there are no restrictions as to what reason the cash can be used for. Some people release equity from their homes to help their children or family to meet immediate financial needs. Others release equity to pay off debts and some even use the money on home improvement. The equity release lenders do not impose restrictions on what you can do with the cash that is released from your property.

How does Equity release work?

There are two main types of equity release schemes that are commonly available on the market. One is known as the home reversion plan and the other is known as a lifetime mortgage. Both of these schemes have their benefits and in order to decide which equity release scheme is better it is important to study your financial circumstances and financial goals to pick the right equity release scheme for your situation.

How does home reversion equity release work?

With a home reversion plan the borrower sells their property to an equity release company in return for cash. However that does not mean that the homeowner has to leave the property after the sale. The homeowner can continue to live in the same property until death or until they are taken into permanent. The equity release scheme company recovers the cash that is paid out to the homeowner once the property is vacated (after death or permanent care) from the sale of the property. All the proceeds of the sale are used to settle the debt with the equity release company and anything left over is passed on to immediate family.

How does equity release with a lifetime mortgage work?

As the name suggests, with a lifetime mortgage the homeowner is issued a loan which accrues interest over the life of the loan. The debt is settled from the sale of the property when the homeowner either dies or is taken into permanent care. Like the home reversion plan the homeowner can continue living in the same property without having to move to another home.

One thing that is common with home reversion plans and lifetime mortgages is the fact that the homeowner can benefit from either a lump sum cash payment or regular monthly payments.

There are also other types of equity release schemes that are available on the market but the two mentioned above are the most commonly known. If you would like to learn more about equity release schemes and how equity release schemes work then get in contact with us and we can advise you on the different plans available to you. Our advisers will help you work through the different equity release scheme plans to identify the most suitable plan for your circumstances.