Which is the cheapest home reversion plan, as an independent financial adviser I see this as a last resort product, we explore all other option before suggesting this as a solution.
What is a home reversion plan?
A home reversion plan allows you to sell a stake in your property in return for a cash lump sum, whilst retaining the right to live in it for the rest of your life. You give up a percentage of your property in exchange for cash, which is based on its current value, but the ultimate cost is based on your properties value at the end of the deal.
An example would be if you sold 40% of your property, the provider would get 40% of the sale price of the property. Generally, you can sell between 25% and 100% of your property to a provider, but the amount of cash you get in return will generally be less than market value. This is because you do not pay interest on the money and the provider cannot sell the property until you either move into residential care or pass away. During this time, house prices may rise or fall and so the provider takes this into account when calculating how much you will get.
As with a lifetime mortgage, generally, the older you are, the more of your property you will be able to sell.
Can I take out a home reversion plan?
Home reversion plans are generally available to people who are aged 65 and over and the percentage of your property you can sell will depend on your age.
How much does a home reversion plan cost?
You do not pay interest on the money you receive from a home reversion plan because you sell all or part of your home and it is not a loan. Therefore, the cost of a home reversion plan will depend on the value of your property at the end of the deal.
Who is a home reversion plan good for?
A home reversion plan may be a suitable option if you:
Do not have savings or other income to live on in retirement
You do not mind reducing your family’s inheritance
You do not want to downsize or cannot downsize
There are, however, other equity release products such as a lifetime mortgage will may be more suitable for you.
What types of equity release are there?
A lifetime mortgage is the most popular type of equity release which allows you to borrow some of your home’s value at a pre-determined interest rate, which is usually higher than those on standard mortgages. The loan is repaid when either you sell your home or go into long-term care.
With a lifetime mortgage, you can usually borrow between 18 and 30% of the value of your home and generally the older you are the more you can borrow.
The amount you owe the provider will grow with the addition of interest. Some providers will give you the option to pay off the interest as you go to stop the compounding effect, whereas others will not and so you will end up paying more overall.
Things to consider before taking out a home reversion plan
It is worth considering the following before taking out a home reversion plan:
Impact on inheritance: a home reversion will reduce the inheritance you leave behind which means that there will be less for your beneficiaries.
Impact on means tested benefits: home reversion plans can affect the benefits you receive and may have an impact on any benefits you become entitled to in the future.
Woodward Financials were awarded best wealth management firm in 2021 and again in 2022 who have a team of advisers ready to help you answer these questions and guide you through the right home reversion plan for you.