What Does The Term ‘Equity Release Loan’ Actually Mean?

The term ‘equity release’ encompasses the many mortgage or loan schemes that provide the means by which equity tied up in one’s home can be released for any personal use. Equity release is a generic term that covers many forms of loans on your property. EquityReleaseLoans.com aim to explain ALL these loans & pensioner mortgages that could be available to the over 55’s.

Many people automatically assume ‘equity release’ refers to the traditional equity release schemes whereby NO monthly payments are required and consequently the mortgage balance increases over time. These roll-up equity release schemes have historically deterred many people from releasing equity from their main residence. We understand that historically equity release loans have been besmirched with poorly designed plans which have since been closed to new business.

However, EquityReleaseLoans.com aims to dispel the common myths & fears about how equity release loans and their schemes actually work and can affect many over 55’s lives in a positive, not negative way. By using an equity release advice service that you can trust, follows the Equity Release Council’s Code of Conduct and Financial Conduct Authority’s rules and regulations, you can be assured of receiving the best equity release advice, whether it is right for you, but also on occasions when it may not be suitable.

Equity release loans in retirement

Since their inception in the 1960’s equity release loans have emerged into two main categories of mortgages which can be secured on your property. Dependent upon your age, property value, attitude to risk and your own personal needs will determine which scheme would be most suitable. In 2014 equity release schemes can now subdivided into the lifetime mortgage and home reversion scheme.

More recently, there is one particular form of equity release loan that has undergone much innovation in the types of products developed under its wing. The lifetime mortgage has become the market leading equity release loan, with various products encompassed within this equity release brand. Designed around flexibility, this is the way the equity release market is developing as the baby boomer generation reaches retirement.

For this age group having grown up, managing their finances and being the first generational mortgage repayment era of its kind, they have witnessed how debt repayment can be effectively worked in their favour. In using caution & common sense in their borrowing requirements, the baby boomer generation has historically managed mortgage debt, loans and credit cards in a sensible fashion.

Upon reaching retirement, their attitudes towards enhancing their lifestyle isn’t going to change overnight. Realisation of their drop in income from pre-to-post retirement finances must ensue and effectively ‘cut their cloth’ accordingly. But expenditures, like taxation never cease even into retirement years. Therefore, having the right equity release schemes available, with the right kind of options to suit all aspects of retirement life is essential.

Types of equity release loans

As we have seen loans in retirement can be divided into both lifetime mortgages and home reversion schemes. Let’s look into each type of scheme and understand more about how they function and where their strengths and weaknesses lie: –

  • The Lifetime Mortgage – is an equity release loan that is taken by securing it on your property and in return receiving a cash lump sum. You then have the option of selecting whether to make any repayments towards the interest charged or not. Following this decision the loan will then continue to run for the rest of one’s life, with the eventual term being determined by the longevity of each party to the mortgage. At that point where either the last surviving partner dies or moves into long term care the house is usually sold and the equity release loan company is repaid.
  • Home Reversion Plans – function by the property owner(s) deciding they wish to sell all or part of their property to a reversion company. A lifetime lease is drawn up by the legal representatives which ensures that the occupants can remain living in the property for the rest of their lives. Again, like the lifetime mortgage, the property is eventually sold when the last person has died or moved into long term care. The funds from the sale of the property will be split in accordance with the proportion of the property retained by each party – reversion provider to resident. 

These are lifetime mortgage schemes and home reversion plans. To understand their features and risks involved ask for a personalised illustration.