Other types

There are also other types of equity release products available. These products include:

• Reversion plan
• Loan reinvestment
• Sale/leaseback
• Shared appreciation mortgage

Reversion plan

In this situation, you sell some of the equity in your property, usually at a lower price than the same share of the current market value. The original owner pays no interest on the money received, but gives up any capital growth on the full share of the property sold.

The new part-owners take the risk that it might be some years before they see a return on the money they invested from the eventual sale of the property. In the meantime, you keep the balance of equity in the property and stay in it rent-free. When the home is eventually sold, both you and the new part-owner will share any of the capital growth.

Factors to consider

There are reasons for and against reversion plans:

For:

• An immediate lump sum is released.
• Your tenure (right to stay in the house) can be assured - the U.K., for example, has a formal arrangement that can offer a warranty in that regard.
• You can still leave a proportion of the home's value in your will.
• Can be a good deal if you live a long time and remain in the home.

Against:

• The proportion that can be "cashed up" depends on your age - younger owners can sell only a relatively small share.
• The new part-owner now has a direct interest in everything that happens with the property, including insurance, rates and maintenance.
• Can be a poor deal if you do not remain in the home for a long time.

Loan reinvestment

In this case, you borrow on a mortgage from a traditional lender (like a bank) and reinvest a proportion of your loan with a finance company offering a higher rate of interest. The loan gives you access to a sum of money, while the income earned from the reinvested money covers mortgage expenses such as interest and fees.

Factors to consider

There are reasons for and against a loan reinvestment scheme for equity release:

For:

• You can have an initial lump sum and a regular income from the difference in interest rates.

Against:

• The initial fees tend to be high.
• You'll have a large mortgage.
• Your risk is with a single finance company - if this disappears, so does the income but you'll still have the mortgage.
• The amount you gain on interest may not be enough to cover your mortgage costs if the finance company's rates and mortgage costs diverge.
• The income will affect income-tested government benefits (see Impact on government benefits)

Sale/leaseback

This is similar to a reversion except you sell your whole property to an investor and live there, either rent-free or with some rent to pay, for the rest of your life. The new owner usually pays a substantial deposit, and then the rest will be payable when you either die or leave the house. Although no rent needs to be paid, you may still pay for some outgoings such as rates and maintenance.

Factors to consider

There are reasons for and against using a sale/leaseback:

For:

• You will have significant up-front capital available.
• A lease agreement specifies occupancy details, giving you peace of mind.
• Essentially, you're using your home to meet living expenses.
• Can be a good deal if you live a long time and remain in the home.

Against:

• You're no longer the owner - instead, you're a tenant.
• All of your rights to capital gains are given up, which may not be an issue if you're cetain that this is your "final" home.
• Your flexibility to move to a new home is limited, especially if house prices move significantly.
• These arrangements can be open to potential abuse by unscrupulous providers.
• Can be a poor deal if you do not remain in the home for a long time.

Shared appreciation mortgage

With a shared appreciation mortgage, you borrow money and don't pay any interest (or you pay a low rate), but you give up part of any future growth in the property's value. Based on overseas experience, this could be as a multiple of the amount borrowed. So, if you borrowed 25%, you might give up a larger proportion (say, 75%) of any future increases in your home's value.

Factors to consider

There are reasons for and against using a shared appreciation mortgage:

For:

• You have an initial lump sum available.
• There's no interest accumulating on the loan.
• Can be cost effective if there is low property appreciation.

Against:

• Part of your rights to capital gains are given up, which may not be an issue if you're certain that this is your "final" home.
• Your flexibility to move to a new home is limited, especially if house prices move significantly.
• Can be expensive if there is high property appreciation.
• These arrangements can be open to potential abuse by unscrupulous providers.