Types of equity release

Equity release is a way to access money tied up in your home without having to move. It is an option for UK homeowners aged 55 and over subject to eligibility, so can be a handy way to bolster your bank account in later life. And while it's not for everyone, it's worth finding out the facts to see if it could work for you. So, we're here to explain the two different types of the equity release, helping you piece together the jigsaw and get the bigger picture.

You’ll need to get financial advice, before proceeding with equity release.

There are two main types of equity release, a lifetime mortgage and a home reversion plan. 

What is a lifetime mortgage?

Lifetime mortgages are the most common form of equity release, and the one we offer. It’s a long-term loan secured against the value of your home, which you can apply for any time after you turn 55. You’d borrow a cash lump sum, but there are no monthly payments. Instead, interest builds up for as long as you have the mortgage and is charged on the total amount borrowed and the interest already added. This quickly increases the amount you owe. They allow you to release money from the value of your property tax-free.

Inheritance will be reduced, tax position and welfare benefits may be affected.

With a lifetime mortgage, even if you reserve a portion of your home's value for your loved ones, known as optional inheritance guarantee, repaying the amount you've borrowed (along with any interest) will still reduce the inheritance you leave them.

The maximum amount you can take depends on your age and the value of your property. Your health may also be factored in.

With a lifetime mortgage you'll:

• carry on living in your own home.
• still need to maintain, run and insure your property.
• have nothing to repay until you go into long-term care or pass away (subject to terms and conditions).

What is a home reversion plan?

With a home reversion plan you can sell up to 100% of your home to your provider. In return, you’ll get a tax-free lump sum and be able to live in your property as a tenant. Like a lifetime mortgage, the plan ends when you die or go into long-term care. At this point your provider gets a percentage of the value of your home leading to a loss of full ownership and reduced inheritance – the rest is paid to your beneficiaries. Beneficiaries are the people, persons or charity you want that pay out to go to.

The cash received may affect means-tested welfare benefits and, while typically tax-free, any income from investing this money could be taxed. It's essential to consider these risks and seek financial advice before proceeding.

We only provide lifetime mortgages and do not offer home reversion plans.

Lifetime mortgages and home reversion plans have distinct features:

If you’re unfamiliar with the language of equity release, look up any terms you don’t understand in our equity release glossary.

Finding out the best type of equity release for you is dependent on your situation and circumstances. Doing your research and talking to the right people can help you come to that decision, you can start by reading more of our equity release articles. Or if you feel ready, you can call us to make an appointment with an equity release adviser who will be able to talk to you about Aviva's lifetime mortgages only. You can do this by calling us free at 0800 141 3493 or ask us to call you.