There are two primary equity release products: lifetime mortgages and home reversion plans. Home reversions were previously incredibly popular, but lifetime mortgages have quickly grown in popularity and are by far the most prevalently used option now. That is due, in large part, to the fact that lifetime mortgage products have expanded in offerings so drastically in just a matter of years. While home reversions still offer the same features that once made them so popular, there are several different types of lifetime mortgage products available, all of which offer unique features and enhancements.

Lifetime Mortgage

Lifetime mortgages allow you to release the equity built up in your home and spend the cash any way you want. The scheme lasts for the rest of your lifetime and you can stay living in your home while retaining full ownership of the property. Once you leave the home, either when you pass away or move into long term care, the home is sold, and your debt is repaid to the lender.

That debt may differ depending on the type of lifetime mortgage product you had. There are several different plans available including:

• Lump Sum: The simplest of the lifetime mortgage products, this option provides you a lump sum, tax-free payment against which you do not need to make any repayments.
• Enhanced lifetime mortgage: Can offer a larger equity release or lower interest rate for qualifying medical conditions or lifestyle choices that lower your life expectancy.
• Drawdown lifetime mortgage: Withdraw funds from your cash facility as you need them, only ever paying interest on the money you’ve already released.
• Interest-only lifetime mortgage: Allows you to make repayments to combat the impact of interest roll-up.
• Voluntary repayment: Allows you to make some repayments against your loan, most of the time up to a total of 15% of the original amount you borrowed without paying any fees.

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Home Reversion

While you can still leave behind an inheritance with a lifetime mortgage product, home reversions were originally created for that purpose. This form of equity release was also created for the homeowner who has concerns about the impact of interest roll-up.

With a home reversion plan, you sell off part, or all of your home to the equity release provider. In exchange, you receive a cash lump sum payment, or sometimes several smaller lump-sum payments. They are all tax-free and you can stay in the home for the rest of your life without paying any rent, just as you would with a lifetime mortgage.

When the home is sold, either when you move into long term care or pass away, the proceeds from the sale are divided according to the ownership percentages. So, for example, if you sold off 40% of the home, the lender would receive 40% of the proceeds and your estate would receive 60%. Whatever your estate receives would go to your beneficiaries as an inheritance.

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Similarities

Both lifetime mortgages and home reversions have their different advantages. They also have similarities such as the following:

• Release equity for cash you can spend however you want
• Remain in the home rent-free for the remainder of your lifetime
• Leave behind an inheritance to your loved ones
• Cash payments are tax-free

Differences

There are a few impactful differences between the two equity release schemes such as the following:

• With lifetime mortgages, you retain full ownership of your home. You sell off at least part of your home with a home reversion scheme.
• It may be easier to leave behind an inheritance with a home reversion scheme

Both home reversion plans and lifetime mortgages offer a set of advantages to any homeowner who wants to release equity from their home and better enjoy their retirement. You can work with one of our trusted advisers to get guidance on which plan might be the best fit for you.