What Are My Options?
If, having sought our independent advice, we decide that using the equity tied up in your property is the best option for you, you have a choice of ways to release the equity. Selecting the right Plan depends on many factors such as your age, the type of property you own and how much capital you want to release. This is why it is important to seek financial advice before making a decision.
The Two Main Options for releasing equity are…
There are however a few different ways in which you can take the money.
You could for example take a lump sum, a monthly income or a combination of the two. Alternatively you might have a drawdown Lifetime Mortgage where a cash reserve is set up, you can then take this at any point in the future as a lump sum or in tranches as and when you require extra monies.
However, unlike a normal mortgage, you do not make any payments on some lifetime mortgages until the property is sold. Instead the interest on the loan is added to the total owing. Because interest is rolled up in this way, the amount you will need to pay back when the property is sold can grow quickly. Alternatively you can elect to pay interest and the debt will remain the same.
Of course, the value of your property could go up even faster than the amount you owe. This could reduce or even eliminate the effect of rolled up interest on the amount of equity you have in your property in the future. Conversely, if property values fall, interest will erode the equity in the property much more quickly. Never forget that there is no guarantee that property values will rise in the future. If you live in your property for some time after the plan is taken out, or if property values fall, it is possible that you will have no equity in your home, and therefore nothing for your beneficiaries to inherit.
How Lifetime Mortgages Work
You take out a loan against the value of your home
The lender gives you a lump sum , monthly income or a drawdown facility
You don’t make any mortgage payments until the property is sold or you choose to pay interest each month so your loan remains the same
When you sell your home, you repay the amount you borrowed plus all the interest that has been rolled up over the years
Home Reversion Plans
With this Plan, you sell your home – or more usually a part of it – to a private company called a ‘reversion company’. You do not, however, receive the full market value as you would if you sold your home on the open market. Instead, the reversion company gives you the right to live in your home rent-free for the rest of your life.
Depending on factors such as your age and the value of your property, you may only receive 35% or even less of the market value of your home – and you will rarely receive over 60%. When your home is sold, the reversion company receives a pro-rata share of the proceeds of the sale. If you sold a 50% share of your home to the reversion company, it will receive 50% of the proceeds. These plans are only available if you are over 65.
How Home Reversion Plans Work
You sell a share of your home to a reversion company
You receive a lump sum or regular income
You do not have to pay any rent to live in your own home, even though you no longer own all of it
When your home is sold, the reversion company receives the agreed percentage of the sale price of your home
This Website refers to Home Reversion Schemes and Lifetime Mortgages. To understand the features and risks, ask for a personalised illustration.
For details of how we can be paid, please see our How Much is it page.
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