Equity release can be one of the most useful financial products for home  owners in need of a little extra income. With all of the options out there, however, finding the best scheme for you can be daunting. This short guide will outline one type of equity release, home reversion plans, and information about other types are also available on this site.

How does equity release through a home reversion plan work?

With a home reversion plan, you as the homeowner sell a proportion of your property’s legal ownership to a provider. In exchange for that percentage of your property, the provider gives you either a lump sum of equity, which can be used to make home improvements or other investments for example, and the right to live in your property for the rest of your life. When you and any other mortgage holders at the property die, the house is sold, and the equity is paid to your estate after the balance you owe to the provider is paid back from it.

You are able to sell 100 per cent of the value of your property to the provider if you wish to do so. The sum of money you receive, however, is discounted at a rate relevant to your age. This is because the provider must wait a number of years before receiving the repayment of the amount you have borrowed, which is not due until your death, the death of your partner if they survive you, or a time at which you have moved into long term care. So, if you take out a home reversion plan aged 65, you may only receive 25% of the current market value of your property in exchange, whereas if you were aged 91, you could release around 60% of the value of the property. The proportion you receive is also dependant on your gender; individual providers can tell you what you would receive depending on their policies.

There are several positive aspects to a home reversion plan. You will know when you take out the equity how much the loan will cost you, allowing you to plan, for example, how much you will leave to beneficiaries. This is not the case with other equity release schemes such as lifetime roll up mortgages. You will be less affected if house prices fall and you will be able to sell more proportions of your home’s value at later dates if you wish to do so.

Equity release can be a great way to fully enjoy the value of your property later in life, but it is important to consider all of the options for equity release schemes before choosing one. Information about other options is available on this site, allowing you to do the research you need to make a good decision. An independent financial advisor, or online comparison, can also help you choose the equity release scheme that is right for you.