Lifetime Mortgage - What Are The Benefits of Releasing Equity Now?
By Jason Haines
There are two ways of releasing equity from your home in retirement, these are lifetime mortgages and home revision schemes, below we look at both of these schemes and the advantages and disadvantages of each scheme.
Life time mortgages
If you are over 60 years of age and a homeowner you could benefit from taking out a lifetime mortgage. These are a type of mortgage that will allow the homeowner to make use of the some of the equity in their home by releasing some of it. This is all without any risk to the homeowners house and in some circumstances without having to make any mortgage repayments.
Pros and cons of a lifetime mortgage
However like any mortgage a lifetime mortgage may not be suitable for everyone and it is always important to take advice before entering into any type of mortgage. Like with any mortgage there are advantages and disadvantages to getting a lifetime mortgage such as -
Advantages
Equity that has previously been tied up in home can be released for you to make the most of. This can come in the form of home improvements, a much longer for holiday to somewhere special, a new car or just more money to enjoy the later stages of your life.
Disadvantages
Taking out a lifetime mortgage will reduce the value of your estate and should be considered before application. Any cash lump sum or income that comes from a lifetime mortgage can reduce the amount that you receive from benefits.
Home reversion
Home reversions involve selling part, or all, of your home to a home reversion provider. In return, they will give you an income for life and sometimes the option of a lump sum. If you choose a home reversion, all or part of your home will belong to somebody else. You can remain in your home for the rest of your life rent free (or for a nominal rent, which is often referred to as a ”peppercorn rent”).
If you have sold 100% of your home to the reversion company, when you and your partner die the property will be sold and the company will receive all the proceeds. Otherwise the value of any portion of your home that you have not sold will pass to your estate.
Advantages
You know what proportion of your home will be used at the outset. You can leave a fixed proportion of equity to your estate. Normally a large proportion of the equity you release provides a lifetime income. Home revision schemes are regulated by the FSA.
Disadvantages
You become a tenant in your home as you have to transfer ownership of your property. As it normally provides a lifetime income, the total amount paid out by the reversion company will depend on how long you live. You only benefit from any rises in house prices on the proportion not entered into the Plan (i.e. the percentage of your home that you still own). If you choose to end the plan early, charges may apply. Your tax position and eligibility for means tested benefits may be affected, as might your options for moving or selling your home in the future.
About The Author
Jason Haines is a protection and mortgage advisor at godirect.co.uk, one of the UK’’s most trusted information site about personal finance.
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