For many people worried about static house prices during their retirement, home reversion plans can seem like a great solution for their financial needs. It is a less common element of equity release which has received very little attention in the past. However, the impact of leading providers such as New Life Mortgages introducing new plans should reignite the home reversion market. However, in order to understand this potential impact, it is important to have an understanding of the market place.
Types of Equity Release
Most forms of equity release can be divided into one of two groups: Lifetime mortgages or home reversion.
Lifetime mortgages are loans secured on the property. They have a number of different formats including:
• Interest only: These loans allow the home owner to make payments each month to cover the full or partial cost of the interest. The balance of the loan remains stable and is only due for repayment after the death of the home owner.
• Roll up: These mortgages require no monthly repayment and instead the interest is accrued and compounded to the balance of the mortgage. This can dramatically affect the balance as it is likely to double approximately every eleven years.
• Draw down: This type of scheme allows for no monthly payments in a similar way to a roll up mortgage. However, instead of the home owner receiving a cash lump sum or additional income, the scheme allows for a draw down facility to be created. This means that the home owner can draw down funds up to that limit as and when they have need of them. The benefit of this type of plan is that the interest is only charged on the monies which have been drawn down.
Home reversion plans are a different form of equity release. They allow the home owner to sell all or part of their home to the reversion company. This means that the home owner retains the right to reside in the property as their primary residence without needing to worry about loans or interest rates.
The Benefits of Home Reversion
In times of static house prices, home reversion plans can be an attractive equity release solution. Since the home owner can sell all or part of their property, they are completely aware of exactly what percentage of their home is remaining for their beneficiaries. It is a more attractive form of equity release for those who are concerned about interest charges accruing and the balance of the equity release absorbing all the potential equity within their home.
With a home reversion plan, the home owner can sell all of their home and receive the cash lump sum tax free. This can be an excellent way to finance effective inheritance planning and assist family members financially before they pass away.
Additionally, should the static house prices begin to shift and prices drop further, the client would not be affected in any way, since they no longer own the property.
The Drawbacks of Home Reversion
As with any type of financial product, there are drawbacks to home reversion. The first is that should the static house prices begin to shift upwards, the client would not benefit from the increase in property value, since they no longer own all of the property. However, unless the person has sold all of their property, they would still gain some benefit.
Home reversion plans also tend to have far more restrictive qualification criteria. The value of the property is still a major consideration, but they tend to have higher minimum age requirements, with a minimum age of sixty five being typical with most schemes.
Another major drawback of home reversion is that it can be extremely costly to buy back your property should your circumstances change and you wish to reverse the transaction. There are a number of fees and charges which are applied to buying back, which would mean that you could end up paying significantly more than you received.
Assessing Whether Home Reversion is Right for You
In order to ascertain whether home reversion is the right option for your specific circumstances, you will need to fully explore all the options. There are a number of experienced equity release advisers who can offer all forms of equity release, including home reversion plans. They can assist you in assessing the advantages and disadvantages as they apply to your situation to determine whether it is the best possible option for your needs.
If you are worried about how static house prices will affect your financial situation during retirement, a home reversion plan may be the solution for you. With established equity release companies such as New Life Mortgages showcasing the benefits of home reversion with their new plans, it is likely that more schemes will be on offer, increasing the chances of finding a truly great deal.
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