A home income plan is a form of equity release that allows home owners to obtain a loan against the value of their property. Today, home income plans are not very popular but they are still offered by some providers. There are two basis home income plans: an equity release scheme with the purpose of raising a capital lump sum amount and an annuity plan which uses the lump sum amount to purchase an annuity that will provide home owners with a regular source of income for the rest of their lives.
As with any loan, interest is charged on home income plans as well; however, the interest amount is normally repaid from the income received for the annuity. This is normally an automatic payment that is deducted on a monthly basis from the income amount. The initial loan amount is normally repaid by selling the property when the home owner dies.
A Home Income Plan has a number of advantages. Home owners can secure a guaranteed source of income for the rest of their lives by investing in home income plans. The fact that the interest payments are automatically deducted makes it much easier on the homeowner. Some providers offer a combination of both plans in that apart from the annuity income, home owners can also receive a cash lump sum amount. As homeowners become older, the advantages increase in that providers tend to offer higher income to older homeowners.
Based on the fact that the interest is automatically repaid on a monthly basis, the initial loan amount remains the same. This means that the beneficial will benefit from any increases in the value of the property.
Home income plans do have a few disadvantages. Since that most providers only offer a lump sum amount to be invested in an annuity, home income plans are not very appealing to homeowners who are in need of immediate cash. Although home income plans secure a guaranteed source of income, the income amount is usually fixed. As a result, the income loses its purchasing power over the years due to inflation. As the economy of the country is affected by inflation, the fixed income received on a monthly basis decreases in value and is no longer worth as much as it did when the annuity was purchased.
