Home Income Plans essentially allow you to borrow money by re-mortgaging your property in order to generate income by buying an annuity which pays an income for life, some of which pays the repayments on the mortgage, the rest is paid to the homeowner as income.
Home Income Plans are normally only an option to those aged 75 or more and it’s important to note that the income from the annuity may only cover the interest from the re-mortgage and so there may not be surplus income left over.
So what are the advantages of a Home Income Plan?
- Regular income for life - Because an Annuity is bought with money released from a property an income is provided for life even if you live to over 100
- The original loan won't grow - Part of the income the annuity pays goes towards paying the interest on the loan. This means that unlike a Roll Up mortgage the loan won't grow over time and hence any increase in the value of the property can be passed on to beneficiaries
- Regulated by the FCA - It’s always good to have a financial product regulated and monitored by the financial regulator, the Financial Conduct Authority (FCA)
And the disadvantages?
- Annuity rates are low - Meaning that the loans are usually only available to people over the age of 75
- Annuity rates are often fixed - This means that over the years, inflation will erode the value of any income
- The annuity you buy might not be the best rate - Even though annuity rates are low, there are still tremendous differences between the best paying ones on the market and the worst.
- State benefits might be affected - Money received to equity release could seriously alter the amount of benefits or state support you're able to collect.
- May increase the income tax you pay - Although the original cash is paid out tax-free, if you use this money to generate an income, further tax might have to be paid
- Sheltered accommodation - Many Equity Release providers won't lend against warden assisted sheltered housing or retirement flats
- Hefty early repayment penalties - Sign up but want to cancel the deal at a later stage and you could find there are hefty early repayment penalties
As with all Equity Release schemes it is very important to get advice on whether the scheme is right for you. Please talk to us to find out more and ensure you get the advice you need.
