Reversionary Home Income Plan
Many elderly people find themselves 'house rich but income poor'
when they approach retirement. In other words, they have the
bulk of their wealth tied up in their home when what they really
need is an income to boost their standard of living in
retirement.
Home income plans allow homeowners, especially the elderly, to
release equity which they have built up in their home without
having to sell it.
The answer is a re-mortgage. By increasing the size of their
loans, borrowers can release capital which then goes to buy an
income.
There are two types of home income plan - reversion and annuity.
Reversion:
Through this route, the home is sold to an insurance company
which pays an income to the owner. When the owner dies, the life
insurance company takes ownership of the property.
Annuity:
With this scheme, a mortgage is secured on the property (or a
re-mortgage). The proceeds are used to purchase an annuity to
produce an income. The ideal situation is for a portion of this
income to be used to service the debt. Then, when the homeowner
dies, the debt can be repaid. As with all annuities, the older
you are, the higher the income you can achieve. For this reason,
home income plans are more likely to be appropriate for people
in their 70s.
Home income plans involve risk. The value of your home could
fall. Mortgage rates could increase sharply so they're probably
only desirable for people who need extra income but have no
other way of achieving it.
There's been controversy in recent years and allegations that
some home lenders advanced loans as part of home income plans to
people for whom they were not suitable.
As a safeguard to protect investors, the main specialist home
income plan providers devised a collective initiative called
'Safe Home Income Plans' (SHIP). Participating companies must
observe a code of practice which obliges them to provide fair,
simple and complete presentation of their schemes. As a further
safeguard, a solicitor must check your plan before you sign up.
It will only take a few minutes of your time today but
could save you thousands of pounds in interest payments and will
eliminate any worries you may have about getting the best mortgage deal
possible.
