Home Income Plans

This type of equity release scheme involves taking out a loan against the value of your home.  The lump sum is then used to purchase an annuity which pays out a regular income for the remainder of your life. 

The interest element of the loan is repaid out of the income received from the annuity, and the capital element is repaid out of the sale proceeds from your home when you die.  The monthly interest payments are usually deducted automatically from the income received from the annuity.

Advantages of Home Income Plans

You will receive guaranteed income for the rest of your life.  The older you are, the higher the income you can expect to receive.

Interest payments are deducted automatically from the income received from the annuity, making things easier for you.

Depending on the loan provider, you may be able to receive a cash lump sum in addition to regular ongoing income from the annuity.

The capital amount repayable from the sale proceeds of your home stays the same because interest payments are made out of your annuity income.  Your next of kin will therefore benefit from increases in the value of your home during your lifetime.

Disadvantages of Home Income Plans

This type of scheme will not benefit those who wish to receive an immediate cash lump sum, since the loan proceeds must be used to purchase an annuity.

The amount paid out of the annuity is usually fixed.  Inflation over the rest of your life will affect the buying power of your income, and may affect your standard of living in later life.

Annuities offered by the company supplying the loan are usually less competitive than those available in the market.  If permitted by the scheme, you may be better off shopping around.

Because interest must be paid out of the annuity income, and the terms of the arrangement are less competitive than other products on the market, you may find that you are not much better off as a result of taking out the scheme.