Equity Release Explained
Equity release is the most common name used for schemes that release money locked up in a retired home owner's property. The term 'Equity' means the amount of cash value that could be realised on the sale of a property. Cash strapped retired home owners are often house rich but cash poor during various stages of retirement. Soaring living costs that out strip inadequate pension provision is the main factor that affects the quality of life and even the basic essentials, for what should be golden retirement years for many post war baby boomers. When children grow up and leave home, some retired home owners with large properties are able to trade down to a smaller lower value property and release the cash (equity) in their larger house. However trading down may not be an option for many, as their existing property may not be substantial. Perhaps they simply do not wish to move, for many reasons, such as emotional attachments, close proximity of relatives and friends etc. So what are the alternatives to trading down? With the exception to selling your home and renting another property, there are two other ways to release the money locked up in your house.
Different Types of Equity Release Schemes
Broadly speaking, these two different types of equity release schemes are often known as 'Life Time Mortgages' and 'Home Reversions'. Basically a life time mortgage as the name implies, is a mortgage for life. There are many variations on this theme with fixed rates for life, interest rolled up and draw down schemes, to name but a few. The main feature of the lifetime mortgage is that ownership of the property is retained together with the benefits of increased property values. When the house is sold, the lender is repaid and the balance is retained by the home owner or their estate. The other type of equity release scheme is known as 'Home Reversion'. Essentially this is a way of selling your property at a discounted price for the lifetime right to live virtually rent free. The term 'Reversion' may appertain to the fact that the property ultimately reverts to the investor that provided funds to the home owner. The benefit of this scheme is that more money can often be released through a reversion plan than a Lifetime mortgage, particularly for older home owners. Again there are many variations on the concept, such as a part reversion, whereby only a portion of the property is used to provide funds.
Conclusion
The essential feature that all types of equity release plans should have in common is that they are members of, or subscribe to the rules of 'SHIP'. This stands for 'Safe Home Income Plans'. The most fundamental rule is that the equity release scheme should never expose the home owner to risk of losing the right to live in their property for life.

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This is the first of a series of articles about releasing money to improve retirement living standards. Subsequent articles will evaluate the many variations of the mortgage and reversion schemes.