Equity release is a way for homeowners to release cash from the equity that has built up in their home.

Equity can be defined as the difference between the value of a property and the balance of the mortgage, or any other finance, that is secured on it.

Homeowners can release all or part of the equity they have built up in their properties either as a lump sum, a drawdown facility, or as a steady cash flow over time.

There are two main types of equity release plans – lifetime Mortgages and home reversion schemes.

A lifetime mortgage is secured against a person’s home after redeeming any other finance secured on it. The equity can be released as either a lump sum, a drawdown, or as a regular income.

No interest is payable during the term of the lifetime Mortgage – instead the interest payments roll up into the balance of the loan. The balance of the loan is repayable when either the property is sold or the homeowner moves into long term care.

Home reversion schemes, on the other hand, require the homeowner to sell all or part of their property to the scheme provider. The homeowner will them receive a lump sum payment and can continue living in the property for a minimal amount of rent.

When the property is eventually sold the reversion scheme provider will take their share of the proceeds and pay the balance to the homeowner or to their estate.

Equity release schemes can have an impact on state benefits and inheritance tax. It is therefore a good idea to talk to an Independent Financial Adviser before entering into such a scheme.