A home reversion plan in certain eyes could be considered a better equity release scheme for people over the age of 65, when compared to lifetime mortgages. However, it all depends on one's viewpoint and outlook on the future. Unlike a lifetime mortgage, Home Reversion schemes can actually have the benefit of receiving a choice of an income, or tax-free cash. In return for the tax-free cash, either part ownership or the whole property is transferred to the Reversion provider whilst you retain the right to reside in the property rent free for the rest of your life.
A home reversion plan is a scheme designed to unlock the equity tied up within the bricks and mortar of your home. By selling just a part of your property to the reversion company, you can use the funds raised for any purpose and still ensure that some inheritance is left to your beneficiaries.
Factors to remember about home reversion:
• You sell a portion or your entire home, which decreases the amount of inheritance left for your beneficiaries.
• Home values change during your lifetime, thus an increase or decrease in value of the remaining portion can happen increasing or lessening the inheritance left.
• You will hold a lifetime tenancy agreement once you sell a portion of your home, which needs to name all those living in the house that can be a part of the home reversion scheme.
• This scheme does offer tax-free cash that you can use to pay expenses, help with in home care, or to update your property for your ageing years.
Owing to the fact that the full ownership of the house is not retained by the householder, they therefore lose their market share as they now co-own the house with the lender. For this reason home reversion plans are not as popular as the lifetime mortgage schemes. Reversion plan sales have fallen over the past few years and now account for only about two per cent of all equity release sales completed.
This is because lifetime mortgages have taken over as they are more flexible, you retain 100% ownership, and you can build inheritance protection into lifetime mortgages. With lifetime mortgages, drawdown plans are available on a lifetime basis and you can benefit from any escalation in the house price, which you would only partly benefit from with a home reversion plan.
The release of equity from the home is tax-free and involves no repayment of interest. A part of the house chosen for the income never hampers the guarantee for inheritance on the rest of the house. This scheme is beneficial to old aged people with the clause in action – the older you are, the more you would receive for the share you exchange. The equity you have remaining in the house is clear from the very start and does not depend on the age factor as do lifetime mortgage schemes.
Lifetime mortgage factors to consider:
• You do not sell your home, but obtain a new mortgage on the home to draw out the equity.
• You either have to pay off the mortgage before death or the home can be sold to pay it off.
• There is no guarantee your beneficiaries will receive a portion of inheritance, unless you keep the mortgage small.
• Like any home sale to pay a mortgage, the beneficiaries can inherit funds on the sale of property if the funds obtained do not need to cover the entire loan.
• Your beneficiaries also have the option of paying off the mortgage to retain the property in the family.
• There are four options with lifetime mortgages including enhanced lifetime mortgages that help those with an illness gain access to equity funds.
• Lifetime mortgages, particularly roll-up plans, allow you to be 55 years of age instead of 65.
Both home reversion plans and lifetime mortgages have advantages that make them attractive. In recent years lifetime mortgages have had more flexibility making them the more attractive option to home owners. Some lifetime mortgage operators allow a second mortgage on a home, which can be a disadvantage for beneficiaries. With a home reversion scheme you cannot have a lien on the home, thus more protection is in place for potential inheritance later on.
Due to the lack of appetite for Home Reversion Plans only 3 reversion providers are currently in the equity release arena - Hodge Lifetime, Bridgewater & New Life Mortgages. If you want to speak to a home reversion adviser, call 0800 678 5159 today.
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