Home reversion plans have become one of the most realistic ways of supplementing your pension. Many homeowners today choose this financial option in order to maintain a certain lifestyle even when their retirement funds are lower than initially expected. That said, just like any financial decision in life, it is essential for homeowners to gain a proper understanding of all the implications of choosing such a plan. This does not just include the benefits, but it is also important to know how it can affect how much you will leave behind for your beneficiaries.
Home reversion plans involve the lender buying part or your entire property. As the homeowner, you can choose between receiving a lump sum and monthly (tax-free) payments from the lender. The amount of funds that you can release will be based on the value of the property, the percentage of the property the homeowner wishes to sell, the homeowner’s age, health and several other factors.
One of the main perks of this type of plan is that the homeowner does not need to move out. They can continue living in their beloved home for the rest of their life. Only once the homeowner passes away will the property be sold in order to cover the amount released by the home reversion plan. If the home is sold for more than the amount due, the remaining funds will be distributed as per the deceased’s will. Alternatively, if the funds only cover the amount released, there will not be anything left from the property in the form of inheritance.
One of the biggest upsides of home reversion plans is the fact that homeowners will not need to ask others for financial assistance. So, even if they don’t have much to pass on to their beneficiaries, they won’t leave them in debt or with the burden of helping fund their retirement. In many cases, particular in the instance of children and their parents, beneficiaries prefer to be unburdened by debt. Children are often self-supporting and want nothing more than for their parents to get the most out of their golden years.
It is also important to consider any loans or additional debt in your name. In many cases, homeowners choose to pay off debt before using what’s left of their equity release funds for other projects. If you do not pay off outstanding debt, the amount due upon your passing will be obtained through the sale of your assets. If you don’t have enough to pay back both the equity release and loans, you could end up burdening your loved ones with paying off at least part of your debt.
It is also important that you ask your adviser about a no negative equity guarantee. This way, the amount that needs to be repaid will never exceed the value of the house. By knowing that you won’t go into the red, it will provide you with added peace of mind.