Equity Release - Comparison

Factor

Equity Release Mortgage

Home Reversion

Amount released

Generally used for smaller amounts, to raise an instant cash lump sum.

Upto 100% of the value of the property can be released.

How interest is calculated

As a percentage of the advance - as with any other loan.

No interest charged. Lenders take equity stake in property.

Protection against rising interest rates.

Loan can be capped.

No risk, as no interest charged.

Protection against falling value of property.

Can be protected by "negative equity guarantee".

Lender shares risk with you, or takes all risk if 100% equity released.

How your house will be valued.

As normal.

Lender will base equity released on reduced value of house, depending on your circumstances, and because you may continue to live there effectively "rent free" if lender owns 100% of equity.

Can you move house?

Property may be sold, with proceeds from sale used to repay equity release loan.

As the lender may own the majority, or all of the property, it can be much harder to sell.

Can you extend or repay your loan.

Yes, as exactly as you would with any other loan.

No

Suitable to leave property as inheritance

Providing the property is worth less than £240,000, it can be left to your heir(s), with no additional payments needed beyond repaying the equity release loan.

Not suitable, as the lender owns the property.

Suitable for cash inheritance.

Yes, cash released can be used for any purpose.

Yes, cash released can be used for any purpose.

Useful to reduce inheritance tax liability

Yes, if cash is "gifted" at least 7 years before death. This can save having to gift a whole property.

Yes, cash value of house is available, although there may be no equity in the property to inherit.