A FEW years ago, I went to view what seemed an unusually cheap house. It was big but seriously neglected. The windows were falling asunder; it was damp, without central heating, and had an outside loo.

After years of neglect, it needed serious structural work. The estate agent apologetically gave the usual explanation as to why a house would fall into such a state.

He used two words that are a code for "very dilapidated but a potential bargain." The words are:

'executor sale'. This means that the owner died and the executor of their will is the vendor. And so many elderly people eke out their final years in poverty that those words have become synonymous with squalor.

As it turned the elderly lady who had died lived there right up to the end despite having a problem with her leg. The estate agent hinted that the vendors, her family, would be tempted by a low offer as they were anxious for a quick sale.

I've no idea what their financial situation was. But they knew they were going to inherit today's equivalent of hundreds of thousands of euro for the house, yet appeared to do little to ease the discomfort of their elderly mother in her final years.

The situation is fairly common. Everyone means to help out elderly relatives. But with growing families to support there are always other financial priorities.

Not long afterwards, I mentioned all this to the chief executive of a small bank at lunch. He said it highlighted the crying need for an equity release scheme to enable elderly people to cash in the value of their homes. So why didn't he bring one out?

"Aah! , " he said. "Banks won't touch this product with a bargepole." It's rife with potential complications - from disgruntled relatives challenging wills because they feel "done out of their inheritance", to the very long wait for any potential return.

By the time a profit is realised and the investment paid off, the chief executive who brought it in would be long gone.

Around 2,500 equity release products were taken out last year. But they are going to be a hugely important part of financial planning for life - as important as a pension or a mortgage.

Pensions are a huge issue.

Half the workers in the country don't have one and are facing a bleak retirement.

Even those who have a pension are feeling the pinch of low annuity rates. Yet, most people have a massive pension fund literally right under their nose - their homes.

The rise in property values has conferred millionaire status on many ordinary family home-owners. But it's not much use if you can't get your hands on the money.

Here's where equity release schemes come in. So far Bank of Ireland is the only bank actually to provide them to customers. Fortunately other providers have filled the gap too: RRL, Ship, Seniors.

Last week, the Financial Regulator released a comprehensive report on equity release (see www. itsyourmoney. ie) - which explains how it works and how it can present pitfalls.

It also asks householders to question if the scheme are even necessary. Why not get a family member to invest in the home under the same terms or better as those offered by the investment companies? That way the property stays in the family and you and the relative work out a good deal between you.

The regulator has urged householders to consider the following:

? Some companies have a fixed 'set-up' fee to cover legal and valuation fees. You may need to budget for between Euro1,500 and Euro3,000 to cover these costs - or shop around.

? Any sum you raise could affect your entitlement to state benefits such as your means-tested state pension.

? The money may not last for your lifetime, and its value will gradually fall because of inflation.

? Your long-term health and care needs will need to be considered.

? There will be a lot less - or perhaps nothing at all - left for your beneficiaries after your death. Discuss it with your family or a solicitor.

? Do you really need the money? Money you get will lose value in a low-interest bank account. If you left it as equity in your home, it could increase in value.

? Could you could rent out some rooms in your home, sell your home and buy a cheaper one, or transfer ownership to a family member in return for the cash and a right to live in the property for life?

There are two types of equity release product: lifetime mortgages and home reversion schemes. So what's the difference?

The answer could be crucial not only to your financial well-being but that of your beneficiaries for years to come.

Last week the Financial Regulator provided new figures that help us to work it out (see table).

At first glance it appears that home reversion gives a better deal. This means that you sell a portion of your home - say 50% - but are allowed to stay in it until you die or move out for more than six months.

Naturally the investment company is not going to pay the full whack if it is has to wait 15 years or more for that eventuality. At 65 you will get less than half the market rate, at 70 a little over half and at 75 you'll probably get around 58.6% according to the figures (see IFSRA table).

That might not sound like much, but it doesn't represent a bad deal, as interest for having the use of the investor's money during your remaining lifespan.

With a lifetime loan, you don't have to pay back any money until you die or move out. But interest mounts up in the meantime.

A typical 65-year-old man has a life expectancy of 15 years. Let's say he gets a lifetime loan at 65 and dies at 80.

If he borrowed Euro100,000 at 6%*, his estate would have to repay that plus Euro145,570 in interest.

If he got a home reversion deal instead, at 65, he'd get just under half the value of his property. So if he sold a chunk of it worth Euro250,000 on the open market, he'd receive just Euro112,430 into his hand - less than half price.

The financial sacrifice here amounts to Euro137,570 (Euro250,000-Euro112,430). But that's better, at first glance, than paying Euro145,570 in interest - Euro8,000 better in fact, although we have to wait 15 years to find out.

A woman lives longer and can expect to get a worse deal than the figures quoted here with equity release.

Interest rates have gone up since the survey, which makes the gap wider. But that's not the whole story.

The value of the property is the key.

Remember, the man who went with equity release sacrificed a Euro250,000 chunk of property. Supposing that chunk rises in value by 40% over the intervening 15 years?

The increase in value would be Euro100,000 - more than enough to compensate for the Euro8,000 lost earlier.

But what if the market goes down? What if the market did what it did in Japan and Germany for years and simply stagnates and declines in value?

If property values go down, the equity release scheme is better. However, most experts would expect it to go up in value, and probably by more than is required to account for the initial gap between the two schemes.

In short, equity release is better if you expect the property market to stagnate, rise by a little, or go down; a lifetime loan is better if it grows at a moderate pace.

Another way to look at it is that equity release is better if you expect to live for a long time; a lifetime loan is preferable if you are pessimistic about your prospects and will have to rack up interest for longer!

Equity Release Options

LIFETIME MORTGAGE Amount borrowed owed after 5 years 10 years 15 years Euro50,000 Euro67,454 Euro91,014 Euro100,000 Euro134,907 9 Euro150,000 Euro202,361 3 Based on 6% interest rate Home reversion plan Woman's Market value Lump sum for Age of 50% share a 50% share 65 Euro250,000 ,430 70 Euro250,000 9,758 75 Euro250,000 6,580 Source: The Financial Regulator