Equity Release Types

Equity Release is a scheme in which on can take a loan on the property that you own which builds equity over time without having to actually sell or move out of their property. Equity release mainly has two types of schemes which include lifetime mortgages and home reversion. If you want to go for equity release, you will have to decide on one of these schemes to go further.

Lifetime Mortgages is the most preferred type of equity release in the market. This is a scheme in which you can take a lump sum amount of money, a regular income or both as a loan on your property. In this scheme you still have ownership of the property. In this scheme you need not make any repayments monthly and the loan is repaid only when you go into a long term care or die. The drawback of this schemes is, since you do not make any repayments and the interest get rolled up and the compounding effect on the whole amount rapidly increases the amount that you owe. Money Advice has given out some figures in which if you take up a loan of $45000 on your property at 5% interest, in 5 years it will become $57433 and in 15 years it will be $93,552 and if you happen to live 25 years after you have taken the loan you will end up paying $1,52,387.

Home reversion constitutes a very small part of the equity release market. In this the homeowner can sell a part or whole of the property to some company in lieu a lump sum amount of money or for a regular income with right to stay in their home. Once you sell your property only a part of the sale is given to you or your estate. Say for example if you sell 60% of your property, you will get 40%, the fees for this is around $1500 plus charges of any financial advisor you may have.