Home Reversion Plan Mortgages
What is a home reversion plan?
First and foremost, a home reversion plan is not a lifetime mortgage; it is quite the opposite. Rather than taking out equity at an interestable rate, you can sell all or part of your property in exchange for a cash lump sum, regular payments, or both. Typically, you can expect to get between 20% - 60% of the market value of your home (or the part you sell). You must also be above the age of 65 and a homeowner.
What is the best way to take equity from a home reversion plan?
There are three options to consider when releasing equity through a home reversion plan.
Firstly, a lump sum, giving you the freedom to take a large amount of cash and spend it on something splendid. However, once it’s gone, it’s gone.
Secondly, you can choose to have a regular ongoing income. Although this option is not as lucrative as a lump sum, it does give you peace of mind that a guaranteed amount will be received for the rest of your life.
Lastly, you can combine the above, taking what you need as a lump sum and then spreading the rest across regular payments.
Home reversion plans do not suit everybody. Individual circumstances play a huge part on whether a home reversion plan is the best option for you.
How does a home reversion plan work?
In the case of a home reversion plan, you can guarantee what portion of your home will be left as inheritance for your beneficiaries. The ownership of the property (or part you sell) reverts to the reversion company. In exchange, the reversion company grant you a lifetime lease for your property, meaning you can remain there rent-free without the need to make repayments.
For instance, if you chose to sell 50% of your property to the reversion company, you would receive payments based on this agreement. If it came to you requiring long-term care or if you passed away, the proceeds of your home would be split 50-50 between the company and your beneficiaries.
The final amount received would be in accordance with house pricing, at that time, in the market. This means both parties could benefit from any increase in housing prices.
What are some of the benefits & drawbacks of a home reversion plan?
- Safeguarding your inheritance
- Equity released is tax free
- You get to stay in your own home
- No repayments
- No interest
- Can affect your benefits
- You no longer solely own your home
- Can be inflexible if circumstances change
- Building insurance is required