The longer you own your home and make your mortgage payments, the more money that accrues in the home in equity, as long as houses prices rise.  If you need money to pay off your debts you can release the equity in your home through an equity release scheme.  The type of equity release scheme you can qualify for depends on your age, the type of property you currently own, and how much capital you need to release.  You may need more money than you have available in your equity but you can still only release a certain amount based on your qualifications. 

Currently there are two types of Equity Release plans  available in the United Kingdom; the Home Reversion Plan  and Lifetime Mortgages.  Here we take a look at both. 

Home Reversion Plan

A home reversion plan allows you to sell off a part or all of your home to a reversion company.  You do not get the full market value of your home like you would when you sell your home outright, but you will be able to live in your home for the rest of your life.  You receive the money from the home sale based on your age and the value of your property.  You usually receive 35% or less on the market value, and occasionally you could get up to 60%.  When your home is sold, the reversion company claims a pro rate share of the proceeds of the sale. This type of plan is only open to people age 65 and over. 

Lifetime Mortgages

A lifetime mortgage equity release plan allows you to take a loan against your home, and the lender on the loan will pay you with a cash lump sum or monthly income payment or even both depending on how you set up the loan.  How much you receive also depends on the value of your home.  You are not usually required to make a payment on this type of loan until you sell your home, but the downfall of this type of loan is that interest builds up and is added to the total amount you will own on the loan.  This means the amount you will have to pay back will be more than the loan itself. 

If the property value of your home rises faster than the amount you owe on the loan, you could find that the interest rate is reduced or eliminated all together.  If the property value drops you could see the interest rise.  Interest on the property does tend to break the equity on the property down much faster, and there is no guarantee that your property value is going to rise. 

The best thing to do is to discuss your options for equity release with your financial advisor.  There are some equity release schemes that allow you to make interest payments over the course of the equity release loan.  You should always discuss whether or not you should take an equity release loan out with your family before going ahead and doing it.  If you can find an alternative way to pay off your debt  without releasing your equity, you may wish to consider it.