Types of equity release

Understanding lifetime mortgages

A lifetime mortgage is a type of equity release that’s usually for people aged 55 and over. It's a tax-free loan secured against your home. You can use it to get some or all of:

• a single lump sum, where you take the whole loan all at once
• payments of different amounts as and when you need them

You’ll still own your home and won’t need to move, though the payments you get could affect any means-tested benefits you’re receiving. The loan plus any interest will be repaid from its sale when you die or move into long-term care. Don’t forget that paying the loan off will mean that there’s less money from the sale to leave to your loved ones.

On the plus side, if you go with an Equity Release Council-approved provider, your loan will have a No Negative Equity Guarantee. That means you or your loved ones will never owe your lender more than the value of your home.

We also offer a type of lifetime mortgage that works a little differently - a Payment Term Lifetime Mortgage. We go into more detail about that below.

Types of lifetime mortgages

You can choose between these five different types of lifetime mortgages:

• Interest Roll Up Lifetime Mortgages suit people who want flexibility but don’t want to make monthly interest payments.
  They let you draw down your money as one big tax-free lump sum or several smaller ones, without having to pay interest every month. Any unpaid interest is added to your loan, which means the amount you owe can grow quickly.  
  
• Optional Payment Lifetime Mortgages suit people who want flexibility and are happy to make monthly interest payments.
  They let you draw down your money as one big tax-free lump sum or several smaller ones, while paying some or all of the monthly interest on your loan. Any interest you pay off won’t get added to your loan, so it’ll either grow slowly or not at all.
• Payment Term Lifetime Mortgages also suit those who want to make interest repayments.
  This is a type of lifetime mortgage that only we offer. It's for people aged 50 and over, and gives you a tax-free cash lump sum. If you're currently working, you make monthly interest payments until either you retire or reach the age of 75. If you're already retired, you can make payments up until age 75. After that the interest is added to the loan. Paying the interest reduces the overall cost of the loan but if you don't keep up the monthly payments, as a last resort your home could be repossessed. 
• Income lifetime mortgages suit people who want to release money from their homes as a regular, tax-free income.
  They let you take your money as a regular income, usually for a fixed period. You can also combine this with a small lump sum payment if you need a cash injection.
• Enhanced lifetime mortgages suit people who want a lifetime mortgage and aren’t in very good health.
  They work like standard lifetime mortgages, but let you access more equity or a lower interest rate. You get a better deal because your lender wants to make sure you get the full value of your lifetime mortgage over a possibly shorter lifespan.

Understanding home reversion plans

A home reversion plan is a type of equity release usually for people aged 60 and over.

It lets you sell between 25% and 100% of your home for cash. You can get the money as one big lump sum or smaller regular payments.

In practical terms, it’s like becoming a tenant in a home you used to own. But you may have to pay rent to your equity release provider. Your loan payments could also affect any means-tested benefits you’re getting.

When you die or move into long-term care, your provider will sell your home and take their share. But you’ll never have to pay back more than the value of your home.

Lifetime mortgages and home reversion plans are two very different products. We don’t currently offer home reversion plans, but they might be right for you and your circumstances. If you’d like to find out more about them, check out our home reversion plans article.

What’s the most popular type of equity release?

Of the two types of equity release available, lifetime mortgages are by far the most popular.

In 2023, UK providers agreed nearly 65,000 new equity release plans, made use of drawdown reserves or agreed extensions to their existing equity release plans, borrowing a total of £2.6 billion. 

What's the best type of equity release for me?

Like all financial products, equity release isn’t right for everyone. That’s why you can only take out a lifetime mortgage or home reversion plan through a qualified financial advisor. They’ll make sure you understand the product and are confident that it’s right for you and your circumstances.

To find out more, take a look at our frequently asked questions about equity release. And if you’re ready to take the next steps but don’t have a financial adviser, you can find one on Unbiased. They’ll be able to talk you through your choices and help you explore all the products available to you.