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Providing an Equity Release Income

Instead of taking a lump sum or a series of lump sums, you may choose to take a regular income. This option is available under home reversion plans (for a set number of years) and lifetime mortgages.

The advantage of taking an income from a lifetime mortgage is that you only pay interest on the income you have taken. The loan is therefore smaller in the early years than if you had taken a large lump sum as is the interest on the outstanding loan.

Alternatively, you can take a lump sum and use it to purchase an annuity with a life assurance company, but of course you pay interest on the full lump sum from the start. This is one of the reasons why annuity purchase is not a popular option.

John’s Income Plan

John lives in a £400,000 property, but he wishes to supplement his pension. He chooses to take the income option. With this, he receives £100,000 in monthly instalments of £833 over the next 10 years. He pays interest on the money he has received.

He pays no tax on he income: this would be the same as receiving an income of £1,041.25 after deducting the basic rate of income tax.

What are the advantages of the Income Option?

  • All the advantages of a lifetime mortgage or a home reversion plan
  • You only pay interest on the outstanding loan which is smaller in the early years than if you had taken the whole loan ‘up front’ and as a lump sum.

Are there disadvantages of the Income Option?

  • There is no lump sum at the commencement of the plan
  • Your estate doesn’t reduce so quickly for inheritance tax purposes as if you took the loan as a lump sum
  • There are few providers and terms are likely to be less competitive.
  • Annuity purchase should not be considered without specialist advice from a financial adviser

If you would like to discuss your equity release options with an impartial specialist, call freephone 0800 077 6885. You can also try our online equity release calculator.