How does equity release work?

Equity release works by allowing homeowners, typically retirees, to access the value of their property without selling it or moving out. There are two main types of equity release schemes: lifetime mortgages and home reversion plans.

  1. Lifetime Mortgage: With a lifetime mortgage, you borrow against the value of your home while retaining ownership. You can receive a lump sum or regular payments, and interest is added to the loan over time. The loan, plus interest, is repaid when you pass away or move into long-term care, typically using the proceeds from the sale of the property.
  2. Home Reversion Plan: With a home reversion plan, you sell part or all of your home to a provider in exchange for a lump sum or regular payments and the right to remain in the property rent-free for the rest of your life. When the property is sold, the provider receives their share of the proceeds based on the proportion they own.

In both cases, you can continue to live in your home until you pass away or move into long-term care. The amount you can borrow or sell depends on factors such as your age, the value of your property, and the provider’s criteria.

Equity release can provide a source of income or a lump sum for retirees to supplement their pension or fund other expenses. However, it’s essential to consider the implications carefully, as it can reduce the inheritance you leave behind and affect your entitlement to means-tested benefits. Seeking advice from a financial advisor specialising in equity release is recommended before proceeding.

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