The equity in your home is the market value less the loans and debts that you have already secured against it. An equity release allows you access to some of that equity in cash without having to sell it and/or move out of it. There are two basic types of equity release schemes that you can consider.

The basic types of equity release plans are called home reversions and lifetime mortgages. You have to be a certain number of years old for these plans. The exact age is dependent upon the company you work with but it is usually at least over 50, sometimes much older.

Home reversions plans involve you selling at least a part, possibly all, of your home. This can be to either an individual or a company. You are normally paid out in one lump sum. Afterward, you continue living in your home free of charge or with a very tiny fee. You can stay there until you move or until your death. The amount you can get will be dependent on a number of factors such as your age at the time of the deal.

Lifetime mortgages come in several variations. With this type, you retain ownership of your home. Money is borrowed against the equity you have in your own and you keep paying your mortgage.

One type of lifetime mortgage plan is the Roll-up Plan. The money can be paid out in either a regular monthly payment or as a lump sum, and sometimes as a mixture of the two. Interest will accrue on the loan but is not paid until such time as the home is sold, either upon your death or your moving out.

The interest will accrue on the loan and all prior interest so when you take the loan in a lump sum, it adds up fast. With the drawdown version of this plan, the money is taken out in smaller regular payments or only as needed. This way, the debt does not grow as quickly.

Drawdown equity release mortgages account for the greater proportion of plans written each year, as they reduce the amount of accrued interest that would otherwise be added to the loan. Minimum initial lump sums are usually set by the equity release providers at between 10,000 and 25,000.

A second type of lifetime mortgage is called the interest-only mortgage. In this case, you take payment of a lump sum and pay the interest on that loan each month. You pay back the amount of the loan when the home is sold. The danger with this one is that, if the interest rate is variable, you might experience difficulties making the monthly payment if your income is fixed.

Home income plans pay off a lump sum which is then used for purchasing an annuity. This gives you a regular income, part of which is used to pay the interest rate each month. The rest can be used at your discretion. When your home is sold, the original loan is paid off. It is best to use this plan when you are older than just following retirement.

You have a lot you should consider before considering equity release. Make sure you understand all the factors. Getting professional advice can be a really smart move before you commit to something if you are not sure you understand.

An equity release allows home owners access to equity in the form of cash without having to sell or move out of their homes. We’ve got the inside scoop on lifetime mortgage