Equity release plans: what happens to your home?

Friday, 07 December 2012 09:11

Equity release plans: what happens to your home?

Equity release plans: what happens to your home?

If you're considering taking out an equity release plan on your home,  there are lots of things you need to think about, such as how this will affect your property ownership. Read on to find what your rights will be to your property once you have taken out a lifetime mortgage or home reversion plan.

Homeowners who sign up to lifetime mortgages will continue to be the proprietor of the house or flat, and the equity release provider will simply lend them a sum of money for a portion of the abode, which will be repaid to them once the proprietors die and the property is resold. Those who sign up to a home reversion plan, however, face different conditions, as the equity release company has, in effect, bought some or all of the property from them for a specific fund.

Both plans, whether you remain the owner of the home or not, allow you to stay living there until you – and your partner, if you are in a couple – dies. However, you might be concerned that if you are not the proprietor of the property, you can't leave it to your children or other loved ones when you die.

It is true that by taking out a home reversion plan, you will cut the amount of inheritance you leave, as a significant proportion – if not all – of the home has been sold to the equity release provider. The money you generate from this 'sale' can then be left to your family by placing it in a savings account, or – what typically happens – it is used to help you pay for your retirement.

There are ways to enable you to give some cash to the surviving members of your family, though. You could, for instance, not sell the entire property, in which case the portion that you maintain ownership of will be left to your loved ones. If your property increases in value over the years, you may find that the amount of cash you can leave to your children rises significantly.

You can take out a lifetime mortgage, but the amount you leave to those who survive you will still be greatly reduced, as a sum of money generated by the sale of the home will have to be returned to the equity release provider as per the agreement of the loan.

Of course, another way you can retain ownership of your home is to reverse a home reversion plan if you have signed up to one of these. While they are meant to end on the death of you and your partner, you are able to buy back the share of the property that the equity release company owns. Be warned, though, that this may cost more than the amount you originally received from them if the housing market has led to price rises.

However, the advantage of equity release plans is that you can continue to live in your house or flat rent-free for the rest of your life. So whether you own the abode or not, you will never be relocated from the place you know and love, which may be enough to help you rest at ease about your security in the future.



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