What is the Difference Between a Lifetime Mortgage and a Home Reversion Plan?

The key difference between a lifetime mortgage and a home reversion plan is that with a lifetime mortgage, you retain ownership of your home. In a home reversion plan, you exchange the sale of your home or part of it to a lender for a lump sum of cash or regular income for life. For these reasons, most people opt for a lifetime mortgage. The main difference is that with a lifetime mortgage, you retain ownership of your home, while with a home reversion you initially sell part of it to a reversion provider. The main difference between annuity mortgages and home reversion plans is the way in which the lender obtains benefits from the credit agreement.

While a lifetime mortgage charges interest to increase debt gradually over time, a reversion plan exchanges a percentage of the principal in the form of a loan for a fixed percentage of the income from the sale of the future property. Both home reversion plans and annuity mortgages allow you to release the capital or fixed cash in your home. Both allow you to stay in your own home and use cash to finance your retirement, and they also allow you to receive cash without having to make regular repayments or risk losing your home. Any money you borrow must be repaid when you enter long-term care or when you die. However, a lifetime mortgage and a home reversion plan are very different types of products; a lifetime mortgage is a loan secured against your property, while a home reversion plan sells a portion of your property at a price lower than its market value.

Below, we explain the main differences between annuity mortgages and home reversion plans.

Annuities

are the most popular type of capital release plan (they account for more than 99% of the plans). They are a form of mortgage, with a first legal charge on the property, but instead of having a fixed term of years, they extend for the rest of your life. Generally, there are no refunds to be made, however, most plans now allow refunds to those who want to control the future balance. With a lifetime mortgage, you borrow a lump sum that will eventually be returned with the sale of your home, either when you die or move to a long-term care facility. Both give you tax-free money to spend in retirement, and in both cases, you can stay in your home until you die or get permanent care. But the big difference is that with a home reversion plan, you no longer own your entire home.

With a lifetime mortgage, your home is still yours. A home reversion plan is different from a lifetime mortgage in that you don't have a loan secured against your home. Instead, you sell part or all of your home to a supplier in exchange for a tax-free lump sum (or smaller sums with additional amounts in the future). This amount is usually greater than the amount you could borrow with a lifetime mortgage since you haven't taken out any loan and there is no interest to pay.

The provider of the home reversion plan makes money on the loan by getting the landlord to agree to give him/her/them/it/a fixed percentage of the future sale of the property which is greater than the percentage of capital disbursed. Saga Equity Release doesn't offer home reversion plans but is available for help and guidance if needed. Once you've understood the difference between types of capital release plans it's time to take closer look at which one might be right for you. The capital released must come from your primary residence and this property must not have debts secured against it including residential mortgages. We've partnered with Later Life Mortgage Counseling Agency which offers lifetime mortgages from carefully selected panel of providers. Life mortgages from providers who are members of Capital Release Council come with non-negative capital guarantee. You should seek legal advice before releasing capital in your home since annuity mortgages and home reversion plans aren't right for everyone.

They want to free up capital to pay for private medical treatments and help their children enter housing ladder with better mortgage offer. For additional guarantees and peace of mind it's best to consider home reversion plans offered by Equity Release Council members. While lifetime mortgage involves taking out loan against equity of your home, home reversion plan involves selling all or part of your home to reversal provider. Lifetime mortgage can give up to 60% value of property but this will accrue interest if not returned and could affect remaining capital. Once determined if capital release is right for you choice between different capital release plans generally comes down to either home reversion plan or lifetime mortgage. Lifetime mortgage when take principal out current property use as lump sum or smaller regular payments. When reviewing capital release options it's important to understand differences between foreclosure plans and annuities.

Life mortgages much more popular than home reversal plans account for most stock release market.