Cash In On The Value Of Your Home

If you find you're a little strapped for cash in retirement you may be tempted to cash in on the value of your home using an equity release scheme. But beware: not all schemes are the same...

Last week I looked at how to use a lifetime mortgage to release equity from your home in A Mortgage With No Monthly Repayments. Although these plans can provide much needed cash they're not a perfect solution. Because there are no repayments, the interest you owe rolls up quickly and could eventually wipe out all the equity in your home.

Today, I want to look at an alternative way of releasing equity: a home reversion scheme. This involves selling all or a share of your property to a home reversion company, usually in return for a tax-free cash lump sum.

Unfortunately this sum is likely to be significantly below the market value of the share. But you will retain the right to live in your home for as long as you need to. On death (or when you move into long-term care) the property is sold and the company receives the percentage of the proceeds from the sale that they are entitled to, while your estate retains the rest.

In other words, if you sell a 50% share in your home to a home reversion scheme provider, your estate will receive half of the proceeds from the sale of your home after you die, while the reversion company receives the other half. In this way, a home reversion scheme allows you to ensure your property will provide an inheritance for your family, which you cannot do with a lifetime mortgage.

This is because, with a lifetime mortgages, interest accumulates continually until all the equity in the property has been eaten up, potentially leaving your estate with no inheritance from the sale of your home at all. By contrast, home reversions are not a loan and no interest is payable, so the home reversion provider's equity stake in your home cannot increase.

What's more, if you have chosen to keep a share of your property, your estate will benefit from any rise in the value of your property. And if you retain a portion of the property, some plans will allow you to take extra cash advances, as long as there's enough remaining equity.
source:http://www.fool.co.uk/news/property-home/2008/03/14/cash-in-on-the-value-of-your-home.aspx