Sometimes when people hear certain terms mentioned there is an initial immediate rejection which I believe for many is a big mistake. This is certainly the case for Lifetime Mortgages or Equity Release and I do believe it may well be of benefit to you and your family if you read my comments before immediately casting it away.
Lifetime Mortgages or Equity Release are marketed heavily and you will see regularly on television, in the National Press and the media comments such as usual home to provide cash for holidays, a new car and home improvements. Lifetime Mortgages or equity release in my view need to be considered as almost like an overdraft facility on your main residence where you can have a lump sum or the ability to draw down funds as and when you need them for so many different opportunities. In our lifetime we always need to have a cash reserve for our immediate needs so we can sleep well and ideally a little bit more. The I would our facility as a Lifetime Mortgage or equity release can provide this.
There is the ability to draw down cash from your home and the rate of interest is fixed for your lifetime. The interest can be paid although it make sense to allow this to be added to your mortgage such that there is a mortgage to be repaid being the original loan and the accrued interest when the houses sold after your death. Immediately an objection arises along the lines of I don’t like the idea of debt building up. Frankly it does not matter. You have nothing to pay in your lifetime and the debt is repaid when the house is sold on your death. There is even a guarantee that if house prices fall such that the debt is greater than the value of the house which I’ve never seen happen then there is no liability at all on the decease estate or for the beneficiaries of that estate.
I believe especially with the disturbing increase burden of inheritance tax Lifetime Mortgages will have for many an important part to play in our tax planning.
Within our business we have a brilliant long established mortgage team. This has been such great benefit for our clients over so long and indeed for me. One of the team organised for me just three years ago a fixed rate mortgage for five years at a fixed rate of just 0.94%. I got lucky perhaps. I know I received excellent advice.
In two years time this fixed-rate mortgage of 1.1 million comes to the end of its fixed rate term and I will then have to pay the standard variable rate or consider replacing this mortgage. Watch I had always planned was that at the end of the fixed term in two years time I will simply have a Lifetime Mortgage of 1.1 million. Of course it would have been a much lower fixed rate had I chosen this route 3 years ago but at the time in view of my age and financial circumstances the nominal fixed rate of not .94% per five years was much more appealing.
Imagine when I have my new Lifetime Mortgage will be at a fixed rate until my death. I will choose to have that interest each year added to the mortgage. On my death the mortgage liability will be repaid from the sale of my main residence by my children. The real great benefit here is that this debt is deducted before my inheritance tax liability is calculated. I think simply ha 40% off. What a deal.
I am hoping as seems probable that interest rates will come down over the next couple of years and I will be offered a lower fixed rate than those available today. In some ways it doesn’t matter massively to me about the rate as I am not paying it and I will achieve the inheritance tack savings. Nevertheless the more for my beneficiaries the better.
I will write another article on Lifetime Mortgages or equity release as I’m conscious not to talk for too long.
Finally by taking the time to fully understand the benefits and implications, retired people can use a Lifetime Mortgage to create a more comfortable and fulfilling retirement while leaving a meaningful legacy for their family. The key is obtaining proper advice and in this area I believe our outstanding mortgage team cannot be beaten.
Trevor Downing FPMI FPFS
