Home Reversion – The Popular Equity Release Scheme
When it comes to releasing equity from property a home reversion scheme tends to be the popular choice for many home owners. How it works is that the owner of a property sells a share of the house to a lender but continues to have the right to remain living in the property for the rest of their life.
In the UK the largest current providers of home reversion policies are Bridgewater, Newlife and Hodge Lifetime, but it is always worth seeking advice and comparing policies from a variety of companies before choosing a scheme and signing documents. Professional advisors will charge for their services a percentage of the loan amount, normally coming to somewhere in the region of £1,000, but there are also good quality and reliable equity release comparison calculators on the internet. These are able to work out the amount of equity which can be released on a given property for the customers and are a free service, offering comprehensive explanations of the options available.
With home reversion, the ultimate cost of the arrangement cannot be accurately calculated until the end of the policy. Typical arrangements are to sell somewhere between 25% and 100% of the property to the equity release provider in return for a cash advance. In all cases the percentage value of the lump sum released will be significantly lower than the percentage share of the house which is given over. To make the example clear, an average lender will offer a typical 65 year old person a 20% advance of their property’s value in exchange for a 70% share of its ultimate price. This is calculated after the tenant’s death.
Generally home reversion policies tend to be more expensive methods of equity release than the use of a lifetime mortgage, but, in the event that interest rates rose substantially over the duration of the contract or if house prices fell dramatically, the two schemes would be more evenly matched. The variable quantities involved and future planning for financial circumstance in equity release schemes make them complicated and some would say risky, but with enough research and advice these schemes can be an asset supporting older people into their retirement periods. As stated, it is always recommended to seek advice before you compare equity release scheme, as the terms cannot usually be changed after their arrangement and there are harsh restrictions on what can be done with the property once the individual is no longer the sole owner.
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