There are primarily 2 types of equity release:
1. Lifetime Mortgage: is a type of equity release which works by securing a loan against your home. The loan secured, only needs to be paid back once you pass away or move into long term care. This is a fantastic option for people over 55 years of age as there are no monthly payments to meet, and you can utilise the tax-free money as you wish. If you decide to opt for a lifetime mortgage, you also get a 'No Negative Equity Guarantee’, which ensures that the final repayments will never exceed the value of your property.
You can usually release 18-50% of the built up value of your house, depending on your age.
Under Lifetime Mortgage, there are a wide variety of different types which are mentioned in detail below
Drawdown Lifetime Mortgage: works in the same way as a lifetime mortgage but with more flexibility. With a drawdown lifetime mortgage you can stop being afraid of unforeseen expenditure in-case you or your loved ones fall ill. You’re given a choice of when and how much you want to take out at a time. The advantage of this option is that interest is only applied to the money you have taken. This will dramatically reduce the overall cost and help you avoid falling into debt.
Interest Payment Lifetime Mortgage: with interest payment lifetime mortgages, you are able to make regular payments on the interest that accrues over the lifetime of the loan. Each pound you pay off reduces the amount that your equity release provider takes out of the value of your home when the plan comes to an end.
Protected Lifetime Mortgage: with a protected lifetime mortgage plan, it is possible to guarantee you leave behind something for your family and your loved ones.
Enhanced Lifetime Mortgage: in certain cases you might be able to release more money from your home than a regular lifetime mortgage plan. If you suffer from health problems such as diabetes, high blood pressure or if you are a smoker, you might qualify for an enhanced plan.
2. Home Reversion Plan: offers you the opportunity to sell a share of your property to equity release provider with a right to stay in your home for as long as you want or until you die. This way, you are given the opportunity to live in your house rent-free for the rest of your life. The greatest advantage of a Home Reversion Plan is that the provider only gets the percentage of your home value that you’ve initially decided to sell. For example, if you sold 50% shares of your home, after you pass away, the provider will get the same 50% of the selling price and another 50% will be owned by your relatives or whoever you decide to leave the house to.