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When it comes to releasing equity from your home, lifetime mortgages and home reversion plans are two of the most common equity release options available for homeowners aged 55 and over.
While both allow you to unlock the value in your property, they operate in different ways and suit different financial goals. Understanding how these products compare is essential for making an informed decision that aligns with your long-term needs.
What Is a Lifetime Mortgage?
A lifetime mortgage is a loan secured against your home, allowing you to access a portion of its value as tax-free cash. You retain full ownership of your property and typically don’t make monthly repayments.
Instead, the loan and any accrued interest are repaid when the property is sold, usually when you pass away or move into long-term care.
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Key Features of Lifetime Mortgages:
- Ownership: You keep ownership of your home.
- Flexibility: Options may include interest-only payments, drawdown facilities, or lump sums.
- Inheritance Protection: Some plans allow you to ring-fence part of your property’s value for loved ones.
What Is a Home Reversion Plan?
A home reversion plan involves selling a share or all your home to a reversion provider in exchange for a lump sum or regular payments. You retain the right to live in the property rent-free or for a nominal fee for the rest of your life, but you no longer own the full property.
Key Features of Home Reversion Plans:
- Partial Ownership: The reversion provider owns a share of your property, which increases in value as house prices rise.
- No Interest Charges: As it’s not a loan, there are no interest payments to worry about.
- Guaranteed Living Rights: You can remain in your home for as long as you live.
Comparing the Two Options
| Feature | Lifetime Mortgage | Home Reversion Plan |
| Ownership | You retain ownership. | You sell a share or all your home. |
| Loan vs Sale | It’s a loan with interest. | It involves selling equity outright. |
| Flexibility | Options for lump sums or drawdowns. | Typically offers a single lump sum. |
| Inheritance Protection | You can reserve part of the property. | Reduced inheritance unless pre-agreed. |
| Costs | Interest accrues over time. | No interest, but property value growth benefits the provider. |
| Eligibility | Available from age 55. | Often requires higher minimum age (usually 60+). |
Advantages and Disadvantages
Lifetime Mortgage:
Advantages:
- You maintain full ownership of your home.
- Flexible repayment options and inheritance protection.
- You benefit from any future property value increases.
Disadvantages:
- Interest accumulates, which can significantly reduce the value of your estate.
- May involve early repayment charges if repaid early.
Home Reversion Plan:
Advantages:
- No interest or repayment obligations.
- Provides guaranteed housing for life.
Disadvantages:
- You give up full ownership, and the share sold is typically at a lower market value.
- Future increases in property value benefit the reversion provider.
Choosing the Right Option for You
The choice between a lifetime mortgage and a home reversion plan depends on your personal circumstances, goals, and financial priorities. Consider the following questions:
- Do you want to retain full ownership of your home?
- How important is inheritance planning to you?
- Are you comfortable with interest accruing over time, or would you prefer no repayment obligations?
- Do you need flexibility in how you access funds?
Lifetime mortgages often appeal to those who wish to maintain ownership and benefit from potential property appreciation, while home reversion plans may suit individuals who prioritise no-interest solutions and guaranteed housing for life.
Get Tailored Age 50+ Mortgage Advice
Both lifetime mortgages and home reversion plans come with unique benefits and considerations. Before making any decisions, it’s essential to seek professional advice tailored to your circumstances.
A later-life mortgage specialist can help you explore the options, understand the terms, and choose the product that best meets your needs.
If you’re considering equity release and would like expert guidance, get in touch with a qualified advisor today.
Here at UK Moneyman Limited we provide truly independent mortgage advice and we will consider all alternative mortgage options before equity release.
