Equity Release – Home Reversion Plans

Equity Release Type 2: HOME REVERSION PLANS

This is the second method of raising capital on your property. The other (Lifetime mortgages), involves taking a loan/ mortgage on free equity in property.

With Home Reversion, you SELL a share of the property, but is still allowed to live at the property on a guaranteed basis. The funds available with Home Reversion is based on life expectancy.

Home Reversion involves following:

  • You sell a share of the property. Anything from 25% – 100%
  • You transfer legal ownership to lender.
  • In exchange lender makes a cash payment to your bank.
  • You are able to use the funds as wishes.
  • You get a guaranteed lease to live at the property until death or moving to LTC*.
  • You also pay NO rent or interest on money.
  • On death or LTC the property is SOLD.
  • LENDER – takes their share and your ESTATE gets their share if any available.
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    Maximum release plan – an example of what might be available for selling 100% of property.
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    Optional benefits under Maximum Release plans:
    1. Early vacancy guarantee (EVG)
    Death or moving to Long term care (LTC) in the first five years guarantees a minimum agreed payment on a reducing scale to customer or estate. As equity release is based on long term and an early death or moving to LTC can be severely financially detrimental, if selected, this benefit can make an additional payment.
    2. High House price inflation protection (HPPI)
    If you survive for a long time you may miss out if the property increases in value significantly. This benefit can allow you to gain from some of that increase.

    Flexible Release: best way to understand is through an example:
    1.Mrs Cartwright, age 72*, owns a property worth £250,000 with no mortgage. She wants to build a conservatory and sells 25% of property. The lender advances £25,566 for this share.
    Mrs Cartwright, 5 years later, now age 77 wants to replace her car and travel to Spain.
    The property has grown by 5% a year and is now worth £320,000.
    Sells another 20% to release £32,181.
    3. Mrs Cartwright, 2 years later, age 79, finds it difficult to manage on her pension and wants to release more funds.
    The property value has risen to £350,000. She sells 5.51% to release £10,000.
    4. Dies at age 81. Property now worth £385,000.
    Amount sold = 50.51% and have released £67,747.
    The estate receives the rest i.e. £190,536.

    *Data from Hodge Life Equity Release.

    Staggered release: Example:
    Mr & Mrs Gerrard are both 76 and live in a property worth £150,000. They decide that they would like to commit to sell 100% of their property today, but only want to initially release 50% with the balance being released over 10 years at 5% per year escalating at 5% pa, providing them with the following payments:

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    Contact us for your free brochure on Lifetime Mortgages or Home Reversion plans or email: axess2@btconnect.com