How does it work?

With a home income plan, equity is released through a lifetime mortgage or a home reversion plan and is automatically invested into an annuity that is built into the plan, to generate an income for life. A cash lump sum may be available in addition to an income, but the amount may be restricted.

An annuity is a plan that guarantees a series of payments in exchange for a cash lump sum. The income you receive will depend on prevailing annuity rates, your age at the outset and your gender.

The advantages and disadvantages of a home income plan largely depend on whether the money is released through a lifetime mortgage or a reversion plan, however annuities have their own set of pros and cons:

Advantages

1. A lifetime annuity guarantees that the income will be paid for as long as you live.
2. Income can usually be taken on a level or increasing amount each year.
3. With a home income plan annuity, you can usually get a higher income than would be payable from a standalone annuity.
4. You may be able to take some lump sum in addition to the annuity.
5. The older you are the higher the income.
6. As interest is repaid automatically, the reduction in the home’s value is minimised.

Disadvantages

1. You are committed to an annuity as a means of extra income, leaving you no choice of alternatives.
2. You can lose out by taking a lifetime income if you were to die soon after the plan is completed unless the plan includes protection against this.
3. You do not have the option of allowing the interest to build up, so the reduced annuity may not improve your financial circumstances greatly.
4. Home income plans involve borrowing against your home and may work out more expensive in the long term than downsizing to a smaller property.
5. Home income plans may affect your entitlement to state benefits and grants.

At Blestium Financial Services, we can refer you to Equity Release experts who can help get you the right deal; get in touch to find out more.

A Lifetime Mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.

The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.

Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. This is a referral service.