The real benefits of a Lifetime Mortgage for Equity Release. I want to address the benefits and the fears of this enormous unlocking opportunity.
A Lifetime Mortgage can be such a powerful tool particularly for those people who own their own home and have retired. It is an opportunity to enhance their lifestyle or help their families whilst retaining the security of staying in their own home. However, there is no doubt that the thought of taking on a mortgage particularly in retirement can trigger immediate anxiety. After all, the words mortgage carries the connotations of a financial burden, in stark contrast to the peace of mind and financial freedom that you like to enjoy in your retirement.
In my view a Lifetime Mortgage is fundamentally different from a traditional mortgage as we know it and comparison of the two can be misleading. A Lifetime Mortgage allows us you as a homeowner aged 55 or over to borrow money against the value of your home with no requirement to make any repayments in your lifetime, unless you choose to do. In the majority of cases making repayments is not tax efficient. The loan, along with accrued interest, is repaid only after you pass away or perhaps move into long-term care.
Why does this nervousness often lead to immediate rejection of a Lifetime Mortgage exist?
For most of us we have had a mortgage throughout our working life and we remember that lovely feeling of having that debt burden removed once our mortgage has been fully repaid. The idea of reintroducing debt, however manageable, seems like a step backwards. This nervousness is compounded by naturally our connection to our own home.
I always urge people before rejecting this enormous opportunity out of hand to explore thoughtfully, a Lifetime Mortgage and the significant benefits it can offer. It makes much more sense to explore the opportunity and then reject it before dismissing it at the outset.
Having a Lifetime Mortgage allows you to stay in your own property. After all you own it. This avoids the stress of moving. All you are doing is simply accessing the equity you have spent all those years building up. Most of us prefer to remain in familiar surroundings, our own home ,which we enjoy rather than downsizing to create capital. I have seen so many people over the years reject this move.
One of the most compelling reasons to consider a Lifetime Mortgage is the ability to provide cash for your major goals. I do not like the massive marketing by some providers who preach to people to get cash from a house to have a new car, a long-term dream holiday or for funding home improvements. These are some of the choices but frankly there is much more. For all of us to have in effect an overdraft facility on your home to have access to cash whenever you may need it gives us peace of mind.
The Lifetime Mortgage can, in particular with the massively increased Inheritance Tax burden which will fall upon us all, help us address Inheritance Tax planning. Imagine if you had a Lifetime Mortgage and gift money to your children and you survive for seven years these gifts are treated as Potential Exempt Transfers and are not subject to Inheritance Tax. Further the Lifetime Mortgage with the added interest on your death becomes a debt against the Estate, reducing the overall capital value and therefore your Inheritance Tax liability. This is a double benefit, reducing Inheritance Tax whilst helping your children. Furthermore, I am sure children given the choice would much rather have cash now than on your death.
I recall we completed a Lifetime Mortgage for a gentleman living in a highly valued London property valued at a sum in excess of £9 million. The individual chose to have a Lifetime Mortgage of just £2 million. I know that may seem odd that I refer to £2 million as a small number but based on the person’s age he could have chosen a Lifetime Mortgage of £4 million. Nevertheless, the individual has nearly survived seven years having made the gifts of £2 million to his children. After seven years from the date of the gift the gift will be outside his Estate. The Lifetime Mortgage and equal interest will be a debt on his Estate before Inheritance Tax is calculated. This is a massive tax planning opportunity.
I should add the obvious that being giving too much to children too early can sometimes backfire and we must take this into account.
I recommend that for many this is a route that should be explored further and in my view you can do no better than speaking to one of our outstanding team of mortgage specialists.
In conclusion whilst the thought of a mortgage in retirement can be somewhat daunting as I see it a Lifetime Mortgage is so different from the conventional mortgage we have been used to that this is fundamentally about your freedom and opportunity to help yourself and your family. I believe it is so worth taking the time to fully understand these enormous benefits and implications.
Trevor Downing FPMI FPFS
