What are the differences between lifetime mortgages and home reversion plans?

What types of equity release product are there?

There are two types of equity release available – lifetime mortgages and home reversion plans.

How does a lifetime mortgage work?

A lifetime mortgage is a loan that secured on your house. You get a tax-free cash sum to use however you want while still owning your house.

You are charged interest on the money you have borrowed which can be paid regularly to keep the balance low or you can make no payments and let it add onto your mortgage balance.

You have the guarantee of being able to stay in your home until you die or enter long-term care. Your house is normally sold at this stage, and the proceeds are used to pay off the loan.

You can release from £10,000 upwards with a lifetime mortgage. To find out how much you will free up, use our lifetime mortgage calculator.

You can choose between an equity release plan that allows you to take all of your money at once or a plan that allows you to take smaller amounts as needed. They are called Lump Sum or Drawdown lifetime mortgages.

If you ever owe money on your home, the money you release from an equity release mortgage will be used to pay off your mortgage first. The rest can be used for whatever reason you wish such as a holiday, home renovations, or helping your children get on the housing ladder.

Since home reversion plans are not loans, there is no need to pay interest. You can only benefit from the increase in value of the property if you still own a portion of the property and have not sold the whole property to the Home reversion Plan provider.

Equity release isn’t appropriate for everybody. It can affect your eligibility for government benefits and reduce the value of your assets. It will also reduce the amount of inheritance you leave to your family.

Home reversion Plans are not as popular as Lifetime mortgages because most people enjoy keeping ownership of their property.

What are the differences between lifetime mortgages and home reversion plans?

The main distinction between the two is that you retain ownership of your house with a lifetime mortgage. On the other hand, home reversion plans require you to sell all or a portion of your home in exchange for a lump sum of money.

The other major distinction is that for a lifetime mortgage, the interest accumulates over time as compound interest. This basically mean your mortgage balance increases every month. Home reversion Plans do not accrue interest because they own part or all of the property. The amount you’re given for the percentage of your property you’re selling is based on how long the reversion company anticipates the plan would last.

Key differences between lifetime mortgages and home reversion plans

Lifetime mortgage:

• It’s a mortgage, but you don’t usually have to make any repayments during the lifetime of the mortgage unless you choose to do so.
• The interest on the mortgage is usually rolled up and added to the mortgage, although with some products, you can choose to pay the interest if you wish.
• The mortgage is usually paid back when you die or move into long term care.
• Early repayment charges could apply if you choose to pay back the mortgage early.

Things to consider before applying

Taking out a lifetime mortgage is a huge commitment, and it isn’t right for everybody. You should carefully weigh all of your choices.

Keep in mind that raising a mortgage on your home will reduce any inheritance you leave. It may affect your tax situation and your eligibility for state benefits like pension credit, savings credit, and even council tax gain.

Know that even though you chose not to make payments over your lifetime, your equity release mortgage loan will accrue interest over time.

If you and your partner are eligible for a lifetime mortgage, it could make a significant difference for your quality of life. However, before making a final decision and taking out an equity release mortgage, you should consider other options for raising funds for later life. Consider the following scenario:

• If you’re willing to downsize, you could sell your home and downsize to a smaller, less expensive home, allowing you to access the equity in your home. Don’t forget that you’ll have to pay stamp duty and other fees.
• You might consider taking out an unsecured loan or remortgaging and repaying it over the course of your life.
• You could contribute any savings or investments you have to your retirement fund.
• There are many government grants or benefits that you may be eligible for in order to satisfy your requirements such as home improvement grants or pension credit, etc.

Is there anything else I should know?

Yes, indeed. Both equity release products reduce the amount of money left in your property when you die, and they can impact your eligibility for government benefits and your tax situation.

Before making any decisions regarding equity release goods, we suggest that you speak with one of our expert advisers.

Take a look at the latest protections and regulations in effect or visit the Equity Release Council’s website if you want to learn more about how your interests are secured.

Mortgage Saving Experts provides equity release guidance that can assist you in determining whether or not an equity release is right for you. We would be happy to talk to you.

Be careful of taking equity release and then claiming benefits

The term “deprivation of properties” refers to a form of benefit fraud. This occurs when a person receives benefits and then falsely lowers the value of their savings by giving or spending it. You may be prosecuted for possible fraud if you take out equity release, spend or give money away, and then receive benefits. Any expenditures you have made, as well as the reasons for them, should be reported to the Department of Work and Pensions. Home renovations, loan repayment, and funds for mobility aids are all likely to be handled differently and seen as fair spending rather than an attempt to defraud the benefits system.