Are you looking for some extra cash to pay off debts, make a big purchase or go for home repairs? Well, you may consider going for equity release plans. Such plans allow you to use your home equity and receive lump sum cash or regular income flow.

How do Equity Release plans work?

Such plans are available in 2 forms:

Lifetime Mortgages:

This involves borrowing money against your home equity in the form of mortgage. So, you get tax-free money in the form of lump sum cash or regular income flow or as credit-line.

If there is an outstanding loan on your home, then you need to pay it off as soon as you take the lifetime mortgage. However, only those aged 55 and above can qualify for such loans.

The interest on a lifetime mortgage is higher than other home loans and while you stay in the property throughout your lifetime, the interest keeps accruing at a fixed or variable rate. You need not make any monthly payment. Instead, the loan is paid off when the home is sold after you or the last surviving borrower die or move into long term care.

However, there are some pros and cons of taking a life time mortgage.

Pros:

1. You retain ownership of the home and can benefit when home prices go up.
2. You may be able to leave behind some equity to your heirs depending upon the size and length of the loan.

Cons:

1. The debt keeps growing with time, though you can limit it by taking out cash only when you require.
2. The entire equity may be used up leaving nothing for your heirs.

Although there are some drawbacks, yet with a lifetime mortgage, you’ll be able to release 18-50% of your equity depending upon your age.

Home Reversion Plan:

Such a plan involves selling off part or whole of your home to an investment company which will pay you a lump cash amount or a lifetime regular income. You will have to transfer ownership rights to the company and any part which you haven’t sold off will be held in trust.

You may remain in the home throughout your lifetime without paying rent and when you die, the company will sell off your property and take the proceeds. But if there’s any portion which you haven’t sold, then that value will pass on to your estate.

The pros and cons are listed below:

Pros:

1. You can leave a fixed part of home equity to your estate.
2. Flexible plans allow you to release equity as and when you need it.

Cons:

1. You cannot retain ownership rights on your home.
2. You will benefit from any rise in the home prices only from the part of equity you still own.

No doubt, there are wide options when it comes to releasing equity, but try to go for the one that best suits your situation.