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If you’re looking to release equity from your home but are worried about accumulating interest and the uncertainty regarding inheritance you will leave to your loved ones, a home reversion equity release plan may be something to consider.
A home reversion plan is a type of equity release scheme where part or all of the homeowners’ property is sold to the plan provider, in exchange for a tax-free lump sum. You’ll also receive a lifetime lease, which allows you to remain at the property for as long as you live or until you move into long-term care.
As you get to stay in your home, the provider of your home reversion equity release plan will usually pay less than the true full market value of your home. How much you receive will depend on factors such as your age and property value.
There is no interest charged and the percentage that’s sold remains fixed until the end of the home reversion plan agreement. At this point, which is usually when the last homeowner has passed away or moved into permanent care, the property will be sold and the proceeds split with the lender taking their percentage share. Any remaining funds will be left to your estate.
Although you may look towards the other type of equity release, a lifetime mortgage, when considering which product is suitable for you, home reversion schemes also help those those looking to release tax-free funds from their home.
Some of the benefits of these schemes include:
You can stay in your own home for the rest of your life, or until you move into permanent care
There’s no interest to pay because the scheme is not a loan
You’ll benefit from any increases in the value of your property (from your share of ownership)
You won’t need to move, downsize or relocate
You can protect a portion of your property for inheritance
Releasing equity from your home is tax-free
Some of the drawbacks include:
You will receive less than the market value when selling your property to the home reversion provider
It is costly to cancel the plan early as you would need to buy back back your property at the full market value
You won't be the legal owner of the property
Making sure you’re happy with all the terms of your home reversion plan, or any equity release scheme, is crucial. Your solicitor will then go through the details with you and ensure you are aware of the terms and implications of the plan. Only then should you sign on the dotted line.
As part of your equity release home reversion plan, you will become a beneficial owner and no longer the legal owner, but you’ll still have to make sure your home is properly maintained. It’s always a good idea to have a pot of money set aside for any repairs or ongoing maintenance. It’s also important to note, that you will not be able to make any major changes to the property without permission from the scheme provider.
Depending on the provider you're recommended, here are some of the costs that could be incurred:
Legal fees for a solicitor acting on your behalf
Arrangement fees
Valuation fees
Adviser fees
Ready to see if a home reversion plan is right for you? Our friendly and experienced team are on hand and can be reached on 0800 188 4812 or via our quick contact form. Don’t forget, you must get advice before you take out any equity release product.