In the know 1 What is equity release? There are two main types of plan: lifetime mortgages and home reversion. The lifetime mortgage, is a loan against the value of your home. Repayments can roll up and need not be paid until the property is sold. Reversion schemes entail selling all or part of your home to an equity release company and living in it rent-free until you die or perhaps move into long-term care. Your home is then sold by the company and its percentage of ownership is taken from the sale proceeds. 2 Age qualification For some schemes the minimum age is 55; for others it is 70. You must own your home and have little or no mortgage debt. The property must be in a good state of repair and be worth at least £50,000. 3 What could it cost Here is an example of a couple, both aged 70, who want to raise £50,000 against their £200,000 home. They want to pay back their debt after 15 years, by which time, if property prices rose by 3 per cent a year, their home could be worth £311,600. If they took out a lifetime mortgage at 6.6 per cent, they may ultimately owe £130,415. To raise £50,000 through home reversion they would have to sell 62 per cent of their home, which could give the equity release company £193,190 from the later sale. 4 Consider the alternatives You could take out a standard interest-only mortgage, move to a smaller house or let your children help you in return for an eventual inheritance. 5 No cash for your kids Depleting your estate could be useful for inheritance tax planning. But are your children banking on a large inheritance? Discuss your plans with your family first. 6 Watching over you The Financial Services Authority (FSA) regulates lifetime mortgages but does not yet regulate home reversion plans. 7 Avoid the dangers Safe Home Income Plans (SHIP) is a voluntary industry code that provides consumers with certain guarantees. SHIP members spell out benefits, obligations and limitations. Their plans also protect against customers ever owing more than the value of their home. 8 The right advice You may need tax advice as well as financial advice, which could cost about 1.5 per cent of your lump sum. Legal advice may cost up to £500. Article date: July 2006

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