Currently one of the most popular means of unlocking the value of your home involves taking out a lifetime mortgage plan.

You borrow a set amount of money against the value of your home in the form of a mortgage. This is normally in the form of one lump sum, a regular income or both. There are now plans available that will allow you to take money out as you need it, which could be advantageous in minimising the amount of interest owed.

As long as any outstanding mortgage is settled first, you can then spend the money you release as you wish. The best way to visualise it is to think of it as a long-term loan, secured against the value of your property, that is paid off when your home is sold.

You and your partner continue to live in your home and have no interest to pay at all during your lifetime. Instead, "compound interest" is added or "rolled up" with the loan. The whole debt is then paid off using the proceeds from the sale of the property when the last survivor dies, or moves into a nursing home.

If you are borrowing with your spouse or your partner or somebody else, the property will be sold following the last surviving of you dying or moving into long term care. Any money left over would belong to your estate.

It is always recommended that you seek Independent Legal Advice before entering into any equity release arrangement.

Advantages

• Some schemes are available to those as young as 55 with most typically offering products to people aged 60 onwards.
• You keep ownership of your own home and could still benefit from any rises in house prices.
• You know how much money you will receive from the scheme at the outset.
• Possibility of leaving some equity to your heirs, depending on the size and length of your loan.
• Regulated by the Financial Services Authority

Disadvantages

• Your overall debt will grow over time, although this can be limited by only releasing money you need when you need it.
• The entire equity in your property may be exhausted, leaving nothing for your family.
• As you do not repay anything until the end of the loan, interest is added to the amount owed. You will therefore start to pay interest on this as well. As a result the total amount you owe will grow more quickly than it would with a loan where you are paying off interest during the life of the loan
• If you choose to repay the loan early, early repayment charges may apply.
• Your tax position and eligibility for means tested benefits may be affected, as might your options for moving or selling your home in the future.

Lifetime Mortgage Example

61ear-old David Wright and his wife, Marie, 60, live in Redditch and decide to release some of the value in their home, as they want to maintain their lifestyle and carry out some home improvements.

With their property worth £200,000, they could take out £40,000 straightaway with the Flexible Option. However, as they don't need all of the money in one go, they choose the Flexible Plus Option, which also allows them to take advantage of the increasing maximum loan amount that will be available to them over the life of the plan.

They want to add a kitchen extension onto their home of 30 years, to accommodate their growing family when they come to visit. The bill for the kitchen extension comes in at £15,000, and they want another £5,000 for a holiday with their grandchildren. Mr and Mrs Wright therefore release an initial £20,000 to complete their home improvements, and spend a wonderful two weeks with their family in Spain. In fact they enjoy their time away so much they treat their family to a holiday in Florida five years later, by releasing another £10,000.

Then when Mr Wright reaches 70, the couple decide to replace their existing car by releasing a further £10,000. By releasing their money as and when they need it, not only are the Wrights still the proud owners of a beautiful home (not to mention a collection of great photos of their family holidays), they could also end up paying less interest on the loan, and so their estate may be worth more than with other plans. The Wrights are also completely aware of the amount of interest they owe having drawn money from the scheme, and have been careful to release the right amount of cash for their needs over the years.

These figures are for illustrative purposes only. A full assessment of your circumstances and needs will be undertaken before any advice is given.

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