Top tips – home reversion plan vs lifetime mortgage?
When comparing a home reversion plan vs lifetime mortgage, you may want to consider the following tips:
- A lifetime mortgage is a loan against your home whereas with a home reversion plan, you are actually selling part or all of your home.
- With a lifetime mortgage you still own 100% of the property, whereas with a home reversion plan you only own the proportion if any that you haven’t sold - but you can live there rent free.
- You don’t have to make repayments with either option.
- With a lifetime mortgage you incur interest. With a home reversion plan there is no interest however you won’t benefit on any increase in house prices on the proportion of the property you no longer own.
- With a lifetime mortgage, the loan plus the interest accrued is repaid once the house is sold. With the home reversion plan the provider receives their percentage of the property value when the house is sold, based on the proportion of the property they own.
- Depending on your lifetime mortgage, fees could apply if you choose to pay the loan back early. With the home reversion plan, if you would like to buy back the percentage of the property you have sold, you will be asked to pay the market value.
- The compound interest on lifetime mortgages is typically higher and increases quickly. With the home reversion plan you sell at a price that is lower than market value and won’t benefit from house price rises on the proportion of property you have sold.
How can I use my tax free cash?
The tax free cash that you get through an equity release scheme can be used how you want. Here’s just a few of the ways people have used their money:
Home or garden improvements
Be it a sparkly new kitchen or a relaxing conservatory, reports show using the money to fund home improvements is the main reason people choose equity release. It’s not just about adding those nice touches though, as people also use the money to future proof their property, making it more accessible so they won’t need to move when they are not as mobile as they used to be.
Pay off existing loans or debts
Whether you are trying to clear your debts and outstanding loans before you retire or just wanting start afresh with a clean slate and no monthly repayments, using the money you have released can help. And don’t forget, even if you have an outstanding mortgage in place, you could still be eligible for an equity release scheme - you would just need to pay the outstanding loan off with the money you have released.
Give family a living inheritance
Whilst it’s true that equity release will affect any inheritance you intend to leave your family, many people use the money to provide their family with a so called living inheritance; making the most of the money whilst they are alive to perhaps help them get a foot on the property ladder or pay for education and ongoing tuition fees.
Boost retirement income
Unfortunately retirees with insufficient pension savings is an all too familiar story these days, which is why equity release schemes are becoming a major part of retirement planning for many people, making life that little bit easier by using the money as an income to help supplement existing funds.
Could equity release be right for you?