Types of Equity Release mortgages

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What are equity release mortgages?

Equity release mortgages is an umbrella term for a whole range of mortgages that help people unlock the money that is tied up in their home.

As a useful tool in the arsenal of retirement planning, equity release mortgages are starting to really take the financial world by storm. With searches, applications and completions increasing month on month, equity release mortgages continue to surprise their doubtors.

How do equity release mortgages work?

Before answering this question it is essential to reiterate what has been said above. That equity release mortgages is an all-encompassing term that covers a wide range of products. Now that has been addressed, I will now attempt to explain what equity release mortgages are and how they work.

Well they work in different ways according to which one you take out. Home reversion plans are a type of equity release mortgage and these involve selling all or part of your home in exchange for a lump sum of tax free cash and the right to live in your home until you die. Once you die, the home will revert back to the lender with the twist that the proceeds of the sale of the house will be divided amongst the provider and your estate in the ratio that was agreed upon when you signed up for the home reversion plan.

Home income plans are a lesser used equity release mortgage but still they do get used sometimes. This involves selling part of your home very much like a home reversion plan but instead of getting a lump sum the money is put into bonds for you. This enables you to have a regular income and makes it so that your house funds you through retirement. Makes a change for the house to be paying you for once!

Lifetime mortgages involve taking out a loan against the value of your property. The concept is somewhat similar to a remortgage but don't get confused as there are stark differences. First and foremost, you have to be over the age of 55 to get one of these plans. That means if you don't reach the minimum age limit you can not get one under any circumstances. You also need to be aware of companies pretending that they offer equity release mortgages when in fact they are trying to offer you a sell and rent back scheme. Generally, these companies will say that you can get equity release under the age of 55 but that is just not so. Not now, not ever.

The second major difference is that you do not have to pay any repayments on the equity release mortgages and these payments are taken care of by the equity release mortgages provider so you don't have to worry about a thing. All you would do is sign up and receive tax free income. These will affect the inheritance that you can leave to your offspring and estate so be sure to contact a suitably qualified adviser first along with your solicitor and your family.

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