Choosing Between a Lifetime Mortgage or a Home Reversion Plan

Two of the most common forms of equity release are lifetime mortgages and home reversion plans. They are similar in that they both allow equity to be released from your home.

A lifetime mortgage is an equity release scheme that allows you to take a loan equivalent to a certain percentage of your home. There are several different types of lifetime mortgages; however, they are all similar in that repayments are made when the borrower dies or moves into long term care. In both cases, the property is normally sold and the amount borrowed is repaid.

Apart from the interest only lifetime mortgage, you do not need to make any monthly payments. The interest only lifetime mortgage calculates the total interest amount that needs to be repaid and allows you to repay this amount on a monthly basis. The advantage of this scheme is that the amount that needs to be repaid will be less because the interest amount would have been repaid. Essentially the aim is to have only the principle to repay upon your death or move to long term care.

In order to qualify for an interest only lifetime mortgage, you will need some form of a monthly income to cover the interest costs. If you do not have a monthly income, you will not be eligible for an interest only lifetime mortgage. The income is qualified as dispensable; therefore, you must show proof that any income you have coming in is not already assigned to expenses.

The home reversion plan on the other hand gives you the possibility to sell your property or a part of your property in exchange for a monthly income or a lump-sum cash amount. The benefit of a home reversion plan is that you are allowed to continue living in your house even though you might have sold it. You are allowed to live in your house until your death. Home reversion plans do not include interest.

Choosing between lifetime mortgages and home reversion plans can be difficult. Your living situation and preferences will determine which option will better suit you. However, you are advised to seek advice from an equity release specialist before making a choice.
The mere fact that you are considering an equity release scheme means that you are in need of an additional source of income so eventually you will have to choose between a lifetime mortgage or a home reversion plan. To help you determine which plan might be beneficial consider the information below:

Lifetime Mortgages
•    Require a loan with accruing interest
•    You are still the primary home owner
•    You can live in the home as long as you wish
•    Your family can inherit the house as long as the mortgage is paid
•    Small chance of inheritance.
Home Reversion Plans
•    No loan
•    Portion or all of home is sold
•    Lifetime clause to remain in the home
•    The house must be sold
•    Proceeds from the sale are inherited.

Each plan has differences that might make one option more attractive than the other. With home reversion plans the idea is to guarantee at least some inheritance. Since the home is sold in only a portion the remaining is sold based on full value of the home. The percentage not sold initially is then given to the beneficiaries.

Lifetime mortgages require repayment of the mortgage, which might mean no inheritance is left over when the house is sold for repayment. The other option is for the family to pay-off the mortgage in order to keep the home in the family. It is important to discuss all aspects of lifetime mortgages and home reversion plans with all family members.

By discussing the choice you have, you may be able to better choose between the two options. There is one more special advantage to home reversion plans that should be considered. There is a buy-back option providers offer. The buy-back means you can buy the sold portion of your home back. Typically there are fees associated with this and the selling price can be greater than what you initially sold the home for. It is not the most feasible option when money is tight; however, it does exist.

Choosing between lifetime mortgages and home reversion plans is not an easy decision. Comparing all options including selling the home and downsizing to a smaller home is another consideration. Remember that financial advisers are on hand to explore all choices available to you including what is best for you and your family.