Learn about the 2 main Equity Release products
Home Reversion
Where part of the homeowner’s property is sold to the plan provider in exchange for a tax-free lump sum, or regular payments.
By selling a share of your property, you become a co-owner but continue to enjoy the right to live there for the rest of your life. There is no debt involved, you agree in advance how much equity is sold and how much the home owner retains to create certainty of outcomes.
A home reversion scheme means the homeowner receives a pre-determined amount of money to spend as they wish, in return for selling a share of their property to the provider. The lump sum or regular income received is discounted because the homeowner has the right to stay in their property for life and the funder is providing cash up front. The model allows home owners to pre-determine how much of the equity in their home they are releasing and lock in how much equity they retain.
The good bits of home reversion
Home reversion does not require the home owner to incur debt which accrues until the debt is repaid. Under the reversion model an agreed amount of equity in the home is sold in exchange for a capital payment or an income stream for a fixed period of time. The change in value of the property over time is shared between the provider and the home owner. If property prices increase this is shared between the provider and the home owner, if property prices fall this is equally shared between the home owner and the provider.
Tax-free cash for a more comfortable retirement.
Lifetime occupation rights, you stay in your home for as long as you wish.
There is no interest to pay, and you do not face the impact of compounding interest. Home reversion is not a loan. Higher interest rates work against reverse equity mortgages.
As co-owner you share any increases in the value of your property over time.
There is no need to move home, downsize or relocate.
You can ringfence a portion of your property for inheritance and the number is guaranteed.
Offers protection against falling house prices (unlike a reverse equity mortgage).
The not-so-good bits
You are no longer 100% owner of your own home, which can be difficult to grasp. Your retain title to your home, but when you sell your home you must pay the provider their pre-agreed share of the proceeds.
If you change your mind down the track, buying the house back will be at full market value.
You won’t receive the full market value for your property when it sells.
You do not benefit from the rises on house prices for the share of the home you have sold.
You won’t be able to leave your entire property to your beneficiaries and, thus, their inheritance will be reduced.
Reverse Equity Mortgage
This allows people near the retirement age to access equity in their home, helping fund a more comfortable retirement. It lets owners borrow funds using the home as security, in effect freeing up part of the house without having to sell it. The lender gets its money back (plus interest) when your house is sold. Like home reversion, it allows people to stay in their home and enjoy a modest but worry-free lifestyle. This model is not certain, the interest rate is charged is variable so in most cases the amount of equity retained by the home owner is unknown until the debt is settled.
The good bits of a reverse equity mortgage
Tax-free cash for a more comfortable retirement.
Lifetime occupation rights - you stay in your home for as long as you wish.
No payments - though there is a hook in that; it gets added to your loan balance.
Never owe more than your home is worth; lenders provide a no negative equity guarantee.
The owner gets the benefit of increases in the value of your property over time.
Multiple drawdown options to meet your specific needs at a point in time. These can include an Initial lump sum, regular advances or a line of credit for the unexpected.
The not-so-good bits
Variable interest rates, in most cases the amount of equity the home owner retains is unknown.
Reverse equity mortgage rates are higher than normal mortgage rates.
Interest compounds.
Limits on how much you can borrow and not all regions or types of properties are eligible.
