More and more people are using equity release to, pay down debts, boost their income, help enjoy a comfortable retirement or plan capital expenditure.

Moving home can be a stressful and expensive process at any age. Many people would prefer to stay put and benefit from the ‘equity’ or value tied up in their homes, and equity release schemes allow them to do that.

These are the main types of plan available to older homeowners:

Retirement interest-only mortgage (RIO)

A RIO mortgage is similar to a standard interest-only mortgage, but in this case the loan is usually only repaid when you sell the property, die or move into long-term care. RIO mortgages usually have a minimum age requirement of 50, though some lenders may require borrowers to be 55 or 60.

Lifetime Mortgage

With a Lifetime Mortgage, a loan is taken out on the property to provide a lump sum, an income or a combination of the two. No interest is payable until the home is sold, which could be when you and your partner have both gone into long-term care or died.

A Lifetime Mortgage with a drawdown facility allows you to take the cash in stages, as and when suits you. This gives flexibility and the reassurance that you can access further funds at some point in the future, should you need them. It is more cost-effective, as interest is only charged on funds when they are drawn down.

There are two different types with different costs you can choose from:

  • An interest roll-up mortgage – You don’t need to make regular repayments. The amount you borrowed, plus rolled-up interest is repaid when your home is sold
  • An interest-paying mortgage – paying the interest can reduce or stop interest rolling up. Some plans also allow you to pay off some of the capital if you wish.  

Home Reversion

With a Home Reversion scheme, you sell all or part of your home in return for a tax-free lump sum or a regular income. These schemes are normally available to homeowners aged 65 and over.

You will normally receive below a below market value for your property, as you retain the right to stay in your home rent-free until you move out permanently or die.

When this happens, you or your estate will revive the value of your share from the sale proceeds. The value you receive will be the amount your home sold for, minus the share you sold to the equity release provider originally. This means you’ll know exactly what percentage of your home’s value will be left to your estate on your death.

Professional advice is essential and equity release isn’t the right solution for everyone. Releasing cash from your home reduces the value of your estate and the amount of inheritance you leave, so you should involve your children and dependants from the outset

Equity Release, including Lifetime Mortgages and Home Reversion Plans, will reduce the value of your estate and can affect your eligibility for means tested benefits.

Think carefully before securing other debts against your home. Equity released from your home will be secured against it.