Home Income Plans

Where from? Some insurance companies and some building societies.

How they work You take out a mortgage on your home (there must be no outstanding mortgage already) and use it to buy an annuity - a form of investment which provides you with a regular income for life. You can borrow between 60 and 80 per cent of the value of your home, depending on the scheme. The older you are when you take out the plan, the higher the income you'll get. The plan provider deducts interest (after allowing for tax relief) on the mortgage from the income and hands you the rest. Both the interest on the loan and the income (before interest is deducted) are normally fixed (but see p. ).

The loan is repaid from the proceeds of selling your home after you die or if you move - though the provider might agree to switch the plan to your new home. If they don't and the mortgage is paid off, the income (which is for life) still continues to be paid and is larger because there are no interest deductions. Couples can take out a joint plan which lasts until both have died.

The maximum loan is usually £60,000 - the largest loan on which you can get tax relief. There's a minimum too - say, £45,000. You can usually take between seven and ten per cent of the mortgage as cash, depending on the scheme.

Points to note

You'll have to pay valuation fees and legal fees. The lender might pay for their (but not your) legal fees if the plan goes ahead. Your home remains yours (unlike home reversion schemes - see p. ), so you benefit from any increases in its value and you could use such increases to take out 'top up' loans to provide further income. Most plans are restricted to people who are 70 or older, and couples may need a combined age of, say, 150. The income from the annuity is made up partly of interest - which is taxable - and partly return of your capital which is not taxable.

Verdict

Home income plans are a useful way of boosting retirement income, though they may turn out to be a bad deal if you're in poor health because the income normally stops when you die regardless of how short a period it has been paid for. Some schemes incorporate a capital protection plan that provides for repayment of part of your capital if you die within the first few years of the plan or guarantees that a minimum amount will be paid even if you die.


For more information about The Unit Trust Ombudsman

`Line of Credit' Schemes

Where from? Banks, building societies, insurance companies, finance houses.

How they work You arrange a secured loan but you don't have to take all of it at once. Instead you borrow when you like, what you like up to the agreed 'credit limit'. With some schemes, you even get a cheque book to use when drawing on the credit. You are charged interest just on the amount actually borrowed and you pay off the loan and interest in monthly payments - either of a set amount, or any amount above a specified minimum (such as three per cent of the amount borrowed or £145 if greater). As you repay... see: `Line of Credit' Schemes


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