Many older people use equity release plans to realise some cash from the value of their home. This can give them money that can be used how they choose during retirement, and is not repayable until after their death and their property is sold.

As people have started to live longer and remain fit and able enough to do lots of travel and other activities in their retirement, equity release plans have become more popular.

You can look up the different types of equity release schemes at Age Partnership, an independent company that researches all the different equity release plans available and finds the one that is most suitable for an individual’s circumstances.

There are two basic types of equity release – lifetime mortgages and home reversion plans.

A lifetime mortgage is a loan that uses the value of your property as security. Interest is added at a fixed or variable rate on the loan and you get a tax free cash sum or a regular income that you can receive. The loan is repaid after you pass away, when the property is sold.

A home reversion plan means selling all or a part of your home to the reversion company. In exchange, you get a lump sum of cash and to live in the property rent free until you pass away.

A drawdown option is more flexible as you take cash on the value of your home as and when you need it. You will only be liable to pay interest on the amounts withdrawn.

The advantages of these kinds of plans are that you get a lump sum tax free and will not usually have monthly repayments. You are free to do what you want with the money and can remain in your home as long as you wish. Some plans allow you to guarantee a portion of your home’s value as inheritance for your dependants. You can never be in more debt than the value of your home as the equity release plans come with a ‘no negative equity’ guarantee.

On the downside, this kind of plan reduces the value of your estate and it may affect your entitlements to benefits. You will also narrow down your options later in life. Compared with traditional mortgages, the interest rates on a lifetime mortgage can be high.

If you are interested in finding out more, there’s an equity release guide from Age Partnership available on the company’s website.