The Difference Between a Home Reversion and a Lifetime Mortgage

When it comes to equity release, you generally have two options. In this blog post, we compare both.

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Let’s Explore the Difference between a Home Reversion and a Lifetime Mortgage

 

1. Lifetime mortgage

A lifetime mortgage is when you take equity out of your current property and use it as a lump sum or smaller regular payments.
You still own your home and have the option to pay the interest on the loan as you go along or you can let it amount to a final sum at the end. This won’t be paid until you pass away, get taken into care or when the property is sold.

 

2. Home reversion plan

A home reversion plan is when you sell a part of your home, or in full, at a 20- 60% rate of the market value. This can also be paid in a lump sum or regular smaller payments.

You can still live in your home and hold some of the ownership, but you will have to maintain the standard of the property throughout. You also don’t have to repay the loan until you pass away, get taken into care, or the house is sold.

The main difference is that with a lifetime mortgage you still retain ownership of your home whereas with a home reversion you have initially sold a part of it to a reversion provider.

A lifetime mortgage may also guarantee you slightly more money, as a home reversion will only pay a percentage of what your property is actually worth. However, the plus of this is that on a home reversion, having that lower market value price avoids the interest that adds up on a lifetime mortgage plan.

With both plans, they are protected with a no negative equity policy. This will ensure that if there isn’t enough left over after your death and the house is sold, your beneficiaries will not have to pay more than the value of the house.

And in both cases, if you want to come out of either plan, there will be a cost. With a lifetime mortgage, there will be significant repayment charges.

With a home reversion plan, if you wish to come out early you will be required to buy back the portion of your property that you have sold at full market value. If you are undecided what is the best option for your current financial situation, it is always best to consult with a financial advisor who can assist you on which form of equity release could suit you.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Some buy to let mortgages are not regulated by the Financial Conduct Authority.

You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone.  This is a referral service.

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