Can I Repay Equity Release Early?
Question asked by Mr R Johnson
I’m thinking of releasing equity from my home and I understand there are two options: A Lifetime Mortgage or a Home Reversion Plan. I think I know what an Equity Release Mortgage is, but what is a Home Reversion Plan and how does it work?
Home Reversion is by far the less common form of Equity Release. Lifetime Mortgages, or Equity Release Mortgages, make up the vast majority of all Equity Release plans.
While a Lifetime Mortgage lets you borrow against the value of your home, with a Home Reversion Plan you sell all or part of your home to a provider for less than the market value.
Depending on your age and health, you’ll usually only get 20% to 60% of the market value of your house on the proportion you sell. This reflects the risk the provider is taking – namely, the assumption that house prices will continue to rise.
The proceeds from the sale might come as a lump sum or a series of income payments. Both are tax-free and you gain the right to stay in the property rent-free.
The proportion of your home you’ve sold remains fixed (unless you opt to borrow any more).
Providing you don’t opt to revert your entire property, this also leaves you with a fixed percentage that you still own you’re free to do with what you like, such as leave to any beneficiaries.
When the home is sold, typically after you pass away or move into long-term residential care, the proceeds from the sale are shared out between you and the provider according the proportionate ownership you each have. This also leaves you with a fixed percentage that you still own, that you’re free to do with what you like.
So if you sold 20% of the property to an equity release provider, they’re entitled to 20% of the proceeds from the sale price of your home.
If you want to end the plan early, you’ll likely need to buy back the share you sold at full market value, which could be significantly more than you sold it for.