Home reversion is a type of equity release scheme, where you can sell the value of a portion of your property in exchange for cash. The main attraction of equity release schemes is the fact that you can have access to the equity built into your home without having to sell your property and move out. However, like most other financial products, equity release too has its own advantages and disadvantages. Let’s consider the pros and cons of home reversion plans.
Advantages of Home Reversion Plans
The main advantage of home reversion, as opposed to lifetime mortgages, is the fact that because the cash you receive from the provider is not a loan, there is no interest to be paid on it.
The amount that you get is in exchange of selling the value of all or a portion of your property, and this is repaid when the property is sold.
You can have control over your inheritance by selling only a portion of your property. This way you know the proportion of the equity that will go to the provider when the house is sold.
Although this is not a rule of thumb, home reversion plans generally offer a higher lump sum than lifetime mortgage equity release schemes.
In general, application fees for home reversion plans tend to be lower than lifetime mortgages.
Disadvantages of Home Reversion Plans
Home reversion can present poor value for money, because the provider purchases the property at a highly discounted price. If the price of the property should increase, you do not benefit from this appreciation on the portion of the property, which was sold for a discounted price in the first place.
Early death can effectively mean that you have virtually lost a significant financial asset in exchange for very little.
With the availability of interest only lifetime mortgages, it is now possible to protect the equity in your property by making regular monthly interest payments. This means that your loan balance can remain level until the end and your beneficiaries receive a significant inheritance. When compared to modern flexible lifetime mortgages, home reversion plans are rigid and can offer poor value.
Many people are uncomfortable with the idea of losing ownership of their house to the provider. Although you retain the rights to live in your property until the end of the scheme, not having ownership on paper can cause unease for many people.
Home reversion plans have declined in popularity in recent times, when more flexible equity release plans have become available to people. However, home reversion plans can still prove to be a useful tool for some people. Whether home reversion plans work for you depends on your needs and situation.
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