Sometimes called home reversion products, equity release products provide funding while allowing the borrower to remain debt free.
Unlike reverse mortgages, equity release is not a loan. It is a part-sale property transaction.
Instead of borrowing against the value of the home, retirees can agree to sell a portion of their home in exchange for lump sum capital now.
This has advantages in that there is no capitalising interest and you continue to own your own home and remain living in it with no obligation to sell until you choose.
You agree to sell the lender a share of the future sale value of your home.
The lender determines the amount of cash it can provide to you now based on the share of the future value of your home, together with your age and the value of your home today.
You receive a lump sum amount up front and the lender is entitled to the agreed percentage of the future sale proceeds of your home, whenever that might be.
You can sell at any time. If you decide to sell earlier than anticipated, the lender will calculate its share of the sale price based on the share you have sold along with any rebates due to you.
You retain ownership of your home until you decide to sell.