Types of equity release schemes

Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.

There is a range of equity release schemes available on the market offered by reputable equity release providers, and they fall into two main categories:

  1. Lifetime Mortgages
  2. Home Reversion Plans

Each type of equity release scheme facilitates a different method of releasing the equity in your home, and there are various other useful features available to create the ideal equity release scheme for you, including:

Protected Equity

Many equity release schemes come with a no-negative equity guarantee, and in some cases there are plans which also enable you to protect a fixed share of the value of your home. For example, if you protected a 30% share in your home, you have a guarantee that a minimum of 30% of your property value is protected for you in later life or as inheritance for your beneficiaries.

Impaired Life

Some providers will allow you to release more capital from the equity release scheme if you suffer from one of a list of health conditions.


Many equity release schemes allow you to release the equity in the form of an income, by releasing the capital in staged payments over your lifetime.

Flexible Drawdown

There are some equity release schemes available with a pre-agreed ‘cash reserve’. Like an overdraft, this is a facility which allows you to draw-down cash whenever you wish, so it’s ideal for generating funds when required for home improvements, maybe a new car, a special holiday, etc. Interest is only added to the amount drawn, so they can work out much cheaper than other types of equity release schemes, depending on your needs.

Flexible Drawdown is a complicated area with both advantages and disadvantages. Please review the dedicated section on this subject within the Equity Release area.

Lifetime mortgage

How does it work?

A lifetime mortgage is a form of equity release scheme whereby a loan is secured against your property, providing you with a tax-free cash lump sum or a regular income to spend as you wish.

Although there are Lifetime mortgages where you pay the interest (and possible capital) as it accrues, commonly Lifetime t mortgages are arranged on a roll-up basis, meaning that borrowers will not be required to make payments during the term of the loan, instead the lender adds the interest that accrues to the original loan mount. ‘Roll-up plans’ can be very useful but borrowers must remembers that the amount of the mortgage debt can increase quickly due to ‘compounding’ – i.e. you will be charged interest on the original loan and any interest that is added to the loan account.

Interest is added to the lifetime mortgage loan throughout your lifetime, accruing at a fixed or variable rate. The loan plus interest is eventually paid back when the home is sold which could be when you move into long term care, or when you and your partner die. Subject to your age you can typically release between 18-50% of the value of your home with a lifetime mortgage.


  1. Choose a cash lump sum or regular income, typically with no monthly repayments to meet
  2. You still own your home so all growth in the value (if any, of course) belongs to you
  3. Loans with ‘No negative equity’ guarantee are avaiable
  4. Some plans enable you to guarantee an inheritance for your family
  5. Plans can be taken out as young as 55


  1. Inheritance amount will be reduced
  2. Interest rates may be higher than for normal mortgages due to the long-term nature of the loan.
  3. The amount owed on the loan can mount up quickly as interest is compounded.
  4. Early repayment charges may apply
  5. Tax position and certain state benefits will be affected
  6. You could raise a larger amount with a reversion plan, especially at a younger age

Please note: You can get interest only lifetime mortgages wherein you pay interest monthly, but lifetime mortgages are mainly offered as ‘rolled up’ interest. ‘Rolled up’ interest is paid off all-together in one final payment along with the total amount of your loan when your property is sold, as described above.

Home income plan

How does it work?

With a home income plan, equity is released through a lifetime mortgage or a home reversion plan and is automatically invested into an annuity that is built into the plan, to generate an income for life. A cash lump sum may be available in addition to an income, but the amount may be restricted.

An annuity is a plan that guarantees a series of payments in exchange for a cash lump sum. The income you receive will depend on prevailing annuity rates, your age at the outset and your gender.

The advantages and disadvantages of home income plans largely depend on whether the money is released through a lifetime mortgage or a reversion plan, however annuities have their own set of pros and cons:


  1. A lifetime annuity guarantees that the income will be paid for as long as you live.
  2. Income can usually be taken on a level or increasing amount each year.
  3. With a home income plan annuity, you can usually get a higher income than would be payable from a standalone annuity.
  4. You may be able to take some lump sum in addition to the annuity.
  5. The older you are the higher the income.
  6. As interest is repaid automatically, the reduction in the home’s value is minimised.


  1. You are committed to an annuity as a means of extra income, leaving you no choice of alternatives.
  2. You can lose out by taking a lifetime income if you were to die soon after the plan is completed, unless the plan includes protection against this.
  3. You do not have the option of allowing the interest to build up, so the reduced annuity may not improve your financial circumstances greatly.
  4. Home income plans involve borrowing against your home and may work out more expensive in the long term than downsizing to a smaller property.
  5. Home income plans may affect your entitlement to state benefits and grants.