Equity release plans – also called lifetime mortgages, home reversion or home income plans – are a way of releasing cash, whether to buy that new car, to pay for a holiday or home improvements, or simply to make daily life more comfortable.

These schemes essentially allow you to borrow money against the value of your home, with the debt being repaid from the sale proceeds after your death.

In most cases you will need to be at least 60 years old, have no outstanding mortgage (or you will need to use the equity release money to pay down the existing loan), and own a property in reasonable condition.

Equity release plans can be complicated products and are a major step for many people. Your house is almost certainly the most expensive asset you own; it is also your home. Good advice is therefore key. Age Concern and the Financial Services Authority, the UK’s chief financial watchdog, both recommend getting independent financial advice before proceeding.

They can be attractive. They can give a lump sum, a regular income or both. You don’t have to move house or sell your home to unlock equity and with reputable equity release schemes there is a rock-solid guarantee that you will be able to continue to live in and enjoy your home until the day you die.

However, equity release will not suit everyone. It is always worth considering whether funds could be raised affordably from other sources before going down this route.

There are a few equity release schemes. The Home Reversion Scheme is where you sell your home or a share of it to a reversion company for a lump sum or in return for a monthly income (or a combination of both). Technically you become a tenant, albeit with the right to continue living in your home rent-free (or sometimes for a nominal rent) for the rest of your life. When the property is sold – usually when you die – the reversion company gets its payout.

With the Interest-only Mortgage you borrow a lump sum secured against the value of your home. You pay interest each month, but you have a lump sum to spend as you wish. The capital is eventually repaid out of the sale proceeds.

Home Income Plans used to be the most popular type of equity release plans. You take out a mortgage against your home and use the money to buy an annuity which guarantees you an income for life. Mortgage payments are deducted from this monthly income, although the original capital is only repaid from the sale proceeds, normally after you die.

Lifetime Mortgages give you a lump sum or monthly income (or both). You pay nothing – the interest is ‘rolled up’ into the loan. The amount borrowed plus this interest is repaid out of the proceeds from the sale of the property after you die. How much you can borrow depends on the value of your home and your age – the older you are, the higher the percentage of your property’s value you can borrow. Generally, you will not be advanced more than 50 per cent of the value of the property.

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