Equity Release Loan

Equity Release Loan

An equity release loan enables mature individuals to generate money or capital through the property which they own. Individuals who are 55 and over are eligible for an equity release loan. Along with receiving a cash sum, the borrower is also guaranteed lifetime occupancy to their property. However, the provider of the equity release loan is entitled to the full mortgage repayment by the borrower, or may be entitled to shares in the borrower’s property.

If the provider of the equity release loan holds shares in the property, they are permitted to sell the home at the end of the contract. The contract is terminated when the borrower dies, or is indefinitely moved into a care home. We aim to support our clients in finding the most suitable equity release loan, providing specialist advice to find the best available deal.

An equity release loan consists of two different schemes; a lifetime mortgage equity release loan, or a home reversion equity release loan.

A lifetime mortgage equity release loan entitles the borrower to a loan, which is secured on the borrower’s home. Interest that is paid back to the equity loan release provider on a monthly basis is known as an interest only scheme. The mortgage loan is paid back at the end of the contract (at death of the borrower) and interest is either variable or fixed.

A scheme which enables borrowers to pay back interest along with the mortgage at the end of the contract is known as an interest rollover scheme. Instead of the borrower paying monthly instalments of interest, interest is calculated on a monthly basis and added to the total mortgage debt, which is paid at the end of the contract.

A home income plan works by permitting borrowers to use the recently generated income to obtain an annuity, used to pay off the mortgage (along with interest) through monthly instalments. Interest rates are usually fixed on this type of lifetime mortgage equity release loan plan.

Lifetime mortgage equity release loan products may be convenient as the borrower maintains ownership of their property. Equity left in the estate of the borrower may be made of use by the inheritors of the borrower.  

However, increasing interest rates will result in a larger debt for the borrower to pay back, weakening the equity left in the estate. In addition, younger borrowers may have a substantial debt to pay off at the end of the arrangement, due to high life expectancy allowing more years for interest to roll up over the course of the arrangement. By consulting one of our specialist advisers, clients will have a clearer outlook on whether a lifetime mortgage equity release loan will improve their long term financial health.

Home reversion plans are an alternative equity release loan scheme. Instead of the total mortgage debt being paid back to the equity release loan provider, the provider is entitled to shares in the borrower’s home. In return, the borrower is guaranteed occupancy in the property until death and also receives a lump sum of money.

The borrower can either agree on a full home reversion plan or a part home reversion plan. A full home reversion plan entitles the provider to 100% worth of the property’s shares, enabling the provider to receive all of the profit from the sale of the house after the event of the borrower’s death. A part home reversion plan means the borrower still has shares in the home, so the borrower’s beneficiaries can receive a certain percentage from the sale of the house, depending on how many shares the borrower still retained in the property.

Individuals who believe choosing an equity release plan is the right option for their future must be aware of the potential risks associated with equity release loan solutions. Our specialist advisers are available to answer any queries our clients have, whilst assessing and evaluating which equity release loan plan will be of most benefit to the client.

If you are interested in an equity release loan, contact one of our specialist advisers today.

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This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.