Do you take out a lifetime mortgage or home reversion plan? Taking out an equity release mortgage for anyone is a big step and so it’s important that you understand the different types and choose the one that would be right for you and your family. In a nutshell, the two most popular choices are a lifetime mortgage and home reversion plan. Here Paxton Equity Release, based in Tunbridge Wells, Kent looks at what they entail and the considerations that you have to make to understand which is the most suitable scheme for you.
What is a lifetime mortgage?
The most popular type of equity release plan is a Lifetime Mortgage, which gives you a tax-free cash lump sum to be spent on the things that you want to have and enjoy. It is a loan that is secured against your home and normally there are no monthly repayments. This type of mortgage plan allows you to maintain 100% ownership of your home and normally up to 50% of the value of your home can be released depending on your age.
Different types of lifetime mortgages
So how does this work? During your lifetime, compound interest is added to the loan and this with the lump sum that you receive is paid back when your home is sold, you move into long-term care or you and your partner die. There are different types of lifetime mortgages including drawdown, enhanced, protected, combined and interest payment plans.
What is a home reversion mortgage?
In this type of plan, you will be selling a share of your property and will become the co-owner. You will be able to continue to live in the property for the rest of your life. In essence, a percentage of your property is surrendered in exchange for a sum based on the current value of your property. Some or all of your home is sold to a provider. The sum you receive is determined by a number of factors including your age, value of your home and health. With this type of mortgage, typically, the older you are, the more money you will be able to release.
Home reversion plans may be more suited to older people
With a home reversion plan, you will receive less than the market value of your home. This is because the buyer will be unable to sell it until you move into long-term care or you die. When the property is sold, the lender will receive the negotiated percentage of the net selling price. Interest is therefore replaced by property inflation. This means that the minimum age for eligibility for these plans is normally higher than for a lifetime mortgage. Although this type of mortgage is not as popular as a lifetime mortgage plan, it could have benefits for some people.
Considerations you must make before making your decision
- How much equity do you want to release from my property?
- What is your property worth?
- Your age?
- Your state of health?
- How much do you want to leave your family as an inheritance?
- What do you want the money for?
- Do you want to give up full ownership of your home?
Fundamental differences between the equity release products
The fundamental differences between the two equity release products are as follows:
- With a lifetime mortgage, you still own your home. The lender’s involvement is the interest that they charge, which will roll up. You do have the option to pay some or all of it back on a monthly basis.
- With a home reversion plan, you sell a share or all of your home in exchange for a lump sum of money. The lender owns it all or in part. Their ‘investment return’ will be the amount the market value has increased.
Speak to an experienced adviser and discuss it with your family
Make sure that you speak to an equity release adviser who is prepared to go through the different alternatives with you. You want to ensure that they will only recommend the best and most suitable option for you based on your circumstances. Be very wary of any hard selling and an adviser who wants you to sign on the dotted line quickly. You will need time to think about what plan is the most relevant for you. It is something that you may wish to discuss with your family.
How can Paxton Equity Release help you with your choice?
Martin from Paxton Equity Release will be delighted to go through whether a lifetime mortgage or home reversion plan is suitable for you. He will sit down and go through your options so that you can see whether an equity release product will meet your needs and circumstances and be the right choice for you and your family. Please call Martin on 01892 617070 for a chat or email email@example.com