Home reversion plans are a great choice for anyone who wants to enjoy releasing equity from their home but are also concerned about accruing a large amount of interest and subsequently limiting any inheritance left behind. If you want to enjoy the cash you can receive from the equity in your home, but you also want to leave something behind to your loved ones, this type of plan might be a good fit for you.
What is a home reversion scheme?
A home reversion scheme is an equity release scheme that allows you to actually sell part of your property to the provider. In exchange, you receive a cash lump sum payment, or multiple smaller payments, tax-free.
You can stay in the home for the rest of your life without having to pay any rent.
History of the home reversion plan
Home reversions were once a very popular option for homeowners. The popularity was due in large part to the concerns many homeowners have over accruing too much interest which can prevent them from leaving behind any kind of sizable inheritance to their loved ones.
With that said, these plans are no longer quite as popular as they once were. This is because there are now so many lifetime mortgages available in the equity release marketplace. Most homeowners can find a plan that offers them newer or more flexible features.
However, that does not mean you shouldn’t consider a home reversion scheme for your needs. In fact, the features that once made home reversion plans so popular are still intact and these plans still offer all of the same benefits they did when they were more popular. They can still help you protect your inheritance while also getting you much needed cash to spend now, however you want.
How does a home reversion plan work?
As the homeowner, you receive an amount of capital that is pre-determined. You can spend that cash however you want. In exchange for that cash payment, you sell part of your home to the provider. The amount of cash you receive is smaller than it would be if you sold the home independently and that is because you are able to stay living in the home for the rest of your lifetime without having to pay any rent.
The percentage that you sold to the lender remains the same and you aren’t charged any interest. The home is eventually sold, either when you or the last homeowner has passed away or moved into long term care. When that sale takes place, the proceeds are split according to the ownership percentages of the property. So, if you sold 30% of your home to the lender, they would receive 30% of the proceeds when the home is sold.
Any money left over after your debt has been repaid to the lender can be given to the beneficiaries of your estate thus allowing you to still leave behind an inheritance.
Benefits:
• Stay in your home without having to pay rent
• You still reap the benefits of any increase in your property’s value
• You don’t have to plan for a move or to downsize
• Your cash payment(s) is free of taxes
• You can still leave behind an inheritance
Drawbacks:
• You don’t retain full ownership of your property
• When the home is sold, you only receive your portion of the proceeds
• The cash amount you receive can be less than if you just sold the home
• There could be an impact to your means-tested benefits
How much can I receive?
As is the case with all equity release schemes, the amount you can receive will depend on your personal circumstances. There are some universal factors taken into consideration, however.
Factors that are taken into account when determining how much you can receive include:
• Percentage of the property you sell off
• The value of the property, which must have a minimum valuation of £80,000.
• The youngest homeowner’s age, which must be at least 60
• Your overall health and lifestyle choices
While all of these factors are very specific to your particular situation, in general the shorter your life expectancy, the more cash you are eligible to receive.
Our trusted advisers can help you get a better idea of just how much capital you can receive and if a home reversion plan is the right choice for you. Reach out to us today for a free consultation.