Many older homeowners are unaware that it is possible to release the equity in their homes, two types of scheme are generally available with different lenders having slight differences.

Home Reversion Scheme

In this scheme the client sells the property or a percentage of the property to a plan provider/lender, in return they receive either a lump sum or a monthly income or a combination of both.

The amount available to borrow is dependent on age and gender, for example the younger you are the less you are likely to receive and it is taken into account that women are expected to live longer than men.

The person remains in the house rent free until the last remaining borrower (if a couple) dies or is transferred into long term care, the property is then sold, the plan/lender reclaims their percentage of the proceeds the balance being freed to the beneficiaries.

However it should be noted that should the property value increase greatly over the original valuation and lending amount, the scheme/lender would still be entitled to the same percentage of the increased value.

Cash Release Scheme

With this scheme the homeowner takes out a fixed rate interest only mortgage on the property and uses the borrowed money to purchase a regular income.

There are no monthly repayments to be made as the interest is accumulated over the term of the mortgage, when the borrower dies or leaves the property and goes into long term care the property is sold and the original loan amount plus the accumulated interest is repaid.

So the longer you live the larger the interest payment will be.

It is important to consider taking out a fixed interest loan with a guarantee that the amount owed will not exceed the value of the house, therefore ensuring no risk of negative equity.