How Home Reversion Plans Work
Home Reversion Plans are a form of equity release that enables you to sell part of your home in exchange for cash.
How Much Of Your Home Is Sold?
The proportion of your home that is sold is entirely your choice. You can sell your entire property, or just a small amount. Your decision should be based on factors such as the amount of money you need and how much you would like to leave to beneficiaries when you die: the large the proportion of your home that is sold, the lower the inheritance will be for beneficiaries.
How Home Reversion Plans Work
There are two key criteria that you will have to meet in order to arrange your Home Reversion Plan:
Your home will need to have a minimum of £75,000 of equity in your home that is not currently owed to another company. In other words, the £75,000 cannot be owed to another mortgage or equity release scheme. The more value you have in your property, the more you can receive from your Home Reversion Plan.
The youngest homeowner must be 65 years of age.
Once the company that is arranging your Home Reversion Plan has this information, they will be able to calculate the amount of money that you will be entitled to, and the terms of your loan. They will make a judgement on how long you are likely to remain in your home and, therefore, how long it will take for them to receive a return on their investment.
If you are arranging a loan that is secured with £75,000 of equity, you will not receive £75,000 in cash. You are likely to receive 30% of that 50% of the £75,000. Your age is the main criterion that determines the percentage of home equity you will receive because the firm arranging your Home Reversion Plan will base its calculations on your life expectancy using special tables and assumptions. A person who is 80 years of age is likely to die quicker than a person who is 70 and so the older person is likely to receive a higher loan percentage than someone younger.
The reason for this is that the Home Reversion firm needs to make a return on its investment: the difference between the amount of money that you receive and the amount of money that you lend is their profit. Remember that, depending on your age, the Home Reversion firm may not receive this money for many years.
Stay In Your Home
You can continue to live in your home until you move out to go into care, or until you die. This is known as a Lifetime Tenancy Agreement and it entitles you to live rent free in your home.
If you have arranged a joint Home Reversion Plan involving you and your spouse or partner, then the last person named in the agreement can continue to live in the home until they move out or die. Your home cannot be sold until then. The Home Reversion firm cannot sell your property until then and so you have the reassurance of knowing that you and your spouse/partner can continue to live in your house.
Implications For Your Estate
Using a Home Reversion Plan to release money from your property means that you will know precisely how much money will be taken out of your estate when you die. This enables you to carry out effective estate and inheritance tax planning.