Equity release products come in a variety of different forms to ensure that homeowners have options that best fit their situations. Home reversion is just one type of equity release and is the old adversary to lifetime mortgages. With the differences between home reversion plans & lifetime mortgages there are also different advantages and disadvantages that might make it more or less acceptable as a choice for gaining necessary financing during your retirement.
What is Home Reversion?
Home reversion is not a loan. It is a home equity sale of a property. A homeowner can choose to sell their entire home or just a part of it to a home reversion company. The company gains a return on investment when the homeowner dies or decides to move into long term care. At death the home is sold in full to the home reversion company. Any portion unsold during the homeowner’s lifetime is considered the inheritance of the beneficiary and provided in cash form to the right person. The home reversion company then sells the home for current market value to recoup their return on investment. The home value minus what was given for the sold portions is what the company makes.
From this explanation it sounds very advantageous for the home reversion company. To a point it is since they are in the business of making money. However, there are advantages that can make it a viable option to release equity from your home.
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• You can retain as much ownership of the house as you would like based on home reversion company qualifications.
• You have a lifetime tenancy agreement meaning you can remain in the home until you decide to move out or until death occurs.
• The company cannot repossess the home just because you live longer than they expected you to.
• Since you can choose the amount to sell, you can also ensure there is an inheritance left for your family.
• There is no compound interest, hence the loan never escalates out of control.
• You do give up a portion of your ownership, which many will not be comfortable with.
• The way the home reversion process works you will not get full market value for the portion of home you sell.
• Your home is sold in the end and with a proportion unavailable for family members to retain ownership.
• If you die shortly after setting up the plan, a home reversion scheme can represent poor value for money.
For some living in the home they paid a great deal for over their life is important as they head into their last years. To ensure they can remain until the last possible moment, but with cash on hand home reversion can be a comfortable option. The downside is that a person can sell their home for full market value and move elsewhere versus selling it to a home reversion company for only a portion of market value. There is definitely a loss of investment for the homeowner. These plans are also harder to find in recent years due to a change in the market. With three lenders currently offering home reversion plans, this indicates the current demand for these products. However, it is a viable option for those who see more advantages than disadvantages. If the home truly matters than keeping it in the family for as long as possible may be better than selling it for cash.View Home Reversion Products Here