Home Reversion or Lifetime Mortgage: Which Is Better?
Equity release comes in two forms: a lifetime mortgage and a home reversion plan. They both let you unlock money from your home in later life, but they work in very different ways, and the right one depends entirely on your circumstances. This guide compares them side by side so you can see which route fits, before you take the regulated advice these products require.
At a glance
- Lifetime mortgage
- Borrow against your home, keep ownership
- Home reversion
- Sell a share of your home, no interest
- Ages
- Usually 55+ (lifetime), 65+ (reversion)
- Both need
- Regulated equity release advice
Key takeaways
- A lifetime mortgage is a loan secured on your home. You keep full ownership, and interest rolls up over time.
- A home reversion plan sells a share of your home to a provider. There is no interest and no monthly payments, but you give up part of your ownership.
- Lifetime mortgages are far more common and available from age 55; home reversion usually starts at 65.
- Both are big, long-term decisions and legally require advice from a regulated equity release adviser.
The two types of equity release
Almost all equity release falls into one of two categories:
- A lifetime mortgage, where you borrow a lump sum (or drawdown) secured against your home.
- A home reversion plan, where you sell all or part of your home to a reversion provider in exchange for a lump sum or income, while keeping the right to live there rent-free for life.
The lifetime mortgage is by far the more popular of the two. Home reversion is now a small part of the market, but it still suits some people.
How a lifetime mortgage works
With a lifetime mortgage you keep full ownership of your home and take out a loan against its value. You usually make no monthly payments; instead, interest is added to the loan and to the interest already charged, so the amount you owe grows over time. This is called rolled-up or compound interest, and it can build quickly.
The loan, plus the rolled-up interest, is repaid when you die or move into long-term care, usually from the sale of the home. Reputable plans come with a no negative equity guarantee, so you can never owe more than the property is worth. See our guide to how much equity release you can get for the sums involved.
How a home reversion plan works
With a home reversion plan you sell a share of your home (or all of it) to a provider. In return you get a tax-free lump sum or a regular income, and the right to live there rent-free for the rest of your life.
The catch is what you get for that share. Providers typically pay only 20% to 60% of the market value of the portion they buy, depending on your age and health, because they may wait many years to see a return. There is no interest and no monthly payment, but you have given up part of the eventual sale proceeds, and if house prices rise, the share you sold becomes more valuable to the provider.
Home reversion vs lifetime mortgage: which is better?
There is no single winner, only the better fit for your situation:
- A lifetime mortgage tends to cost less overall when house prices rise steadily and you do not stay in the home for several decades. It also lets you keep 100% ownership, which matters to many people.
- A home reversion plan gives certainty about exactly how much of your home you have given up, and there is no interest to snowball. It can appeal if you want to guarantee an inheritance from the share you keep, and are comfortable selling part of the home now.
For most people a lifetime mortgage is the starting point, with home reversion considered only in specific circumstances. Because these are lifelong decisions with a big impact on your estate, they can only be arranged through a regulated adviser, and it is worth involving your family.
Frequently asked questions
What is the main difference between the two? Ownership. A lifetime mortgage is a loan and you keep your home; a home reversion plan sells a share of your home to a provider.
Which is cheaper? It depends on how long the plan runs and what happens to house prices. A lifetime mortgage often works out cheaper if prices rise and the plan does not run for decades, but there is no guarantee.
Do I need advice? Yes. Equity release is regulated, and you must take advice from a qualified equity release adviser before taking out either type.
Weighing up your options? Read the pros and cons of equity release, get a feel for the figures with the equity release calculator, and always speak to a regulated adviser before deciding.
