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Can I lose my home because of an equity release scheme?

One of the most important questions that anyone considering an equity release scheme should be asking is whether it is possible they could lose their home under the scheme. A person’s home is generally their most valuable possession, so it is important to protect it. Signing up to dubious equity release schemes can jeopardise all that you have built up and secured in your home. Before considering an equity release scheme seriously, get a property solicitor to review the documents and advise you on the scheme.

To understand whether it is possible to lose your home under an equity release scheme, you need to understand how they work. There are two main types of equity release schemes:

  • Lifetime mortgages – Under a lifetime mortgage, the lender pays you a lump sum or monthly income, and the interest is ‘rolled up’ into the loan so that you do not have to pay anything and the amount borrowed plus the interest is eventually repaid out of the sale proceeds
  • Home reversion schemes – Under a home reversion scheme, you sell your home or a share of it in return for a lump sum or a monthly income. You technically become a tenant in your home, but with the right to continue living there for the rest of your life, either rent free or at a nominal rent. On the sale of the property, usually when you die, the company gets their proportion paid out

Under a lifetime mortgage, you could possibly lose your home if the sale of the home is not enough to cover the interest charged across the lifetime of the scheme. Or, if payments of interest are required, you may lose your home if you cannot meet the repayments.

Under a home reversion scheme, you could lose your home if you are obligated to pay rent and you cannot meet your rent payments. Or, you could lose your home if you break the lease.

For these reasons, it is crucial to get a property solicitor to peruse any papers before you sign them. You may wish to bring your property solicitor with you to discussions with the equity release brokers.

If you wish to speak to a specialist property solicitor dealing with equity release schemes, call Caven on 08001 221 2299 or fill in the web-form opposite.

Last updated: 17/03/2011
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