If you’re considering an equity release plan, you’ll want to learn more about how your decision will affect those closest to you.
In this blog post, we discuss the impact of equity release on inheritance and the measures you can take to maximise your estate when your plan is eventually repaid.
Let’s jump right in.
How much inheritance will my family receive?
One of the most common equity release myths is that you won’t leave an inheritance if you take out a plan. But in most instances, this isn’t true.
Yes, equity release by its very nature reduces the capital in your estate – simply because you are borrowing money and will have to repay the amount borrowed (along with the accrued interest) at some point in the future.
But did you know that there are several measures you can take to minimise the impact of your release?
The first thing to consider is the type of lifetime mortgage.
Take drawdown plans for instance. Here, the lender offers you a ‘cash facility’ (and let’s say that’s £100,000). Your facility is there to use whenever you need it and you only pay interest on the amount you borrow. So, if you only need £20,000 now – that’s all you pay interest on.
If you need to tap into your remaining £80,000 facility, you can do, and you’ll only pay additional interest when you do. This means you accrue less interest to repay over the lifetime of the mortgage.
Similarly, interest-only lifetime mortgages allow you to make monthly interest repayments, which means that you’ll only need to repay the initial amount you borrowed. This could be a good choice if you’re concerned about compounding interest and have the income to make regular monthly repayments.
And lastly, there are voluntary repayment lifetime mortgages, which could be ideal if you can’t commit to making regular interest repayments or prove income. Voluntary payment plans offer the flexibility of being able repay upto a maximum of 10-15% of the original amount borrowed with no penalty. These payments can be either ad-hoc or by a regular monthly bank mandate and help towards self-management of your future balance.
We should also mention the combined effects of the interest rate you pay and the future value of your home, as these could have a huge impact on the final value of your estate. Simply put, the lower the interest rate you pay and the greater the increase in the value of your home, the larger your inheritance will be.
At Equity Release Supermarket we have an exclusive ‘equity remaining’ calculator, so that you can play with different scenarios to see how much money you could leave as your inheritance.
There are also other ways that you could borrow, such as a home reversion plan, RIO mortgage or retirement mortgage.
Will my family inherit debt?
While interest is payable on a lifetime mortgage, it doesn’t mean your family will be saddled with a debt after you die or move into long-term care. In fact, with plans recommended by Equity Release Supermarket, it’s impossible.
This is because our industry trade body, the Equity Release Council, explicitly state that members must provide a ‘no negative equity guarantee’ across all their plans. This means that lenders must ensure beneficiaries will never repay more than the property’s value, even if the house value drops in the future.
As long-standing members of the Council, we recommend plans with ‘no negative equity guarantees’ as standard across the whole of the market.
Read more about how we uphold the Equity Release Council’s code of ethics in other areas of our business in this post.
What happens to my partner if I die?
One of the best ways to give your partner more security after you pass away is by taking out a joint equity release plan. This ensures the equity release plan can continue in your partner’s name and they aren’t required to sell or move out of your property.
Find out more about what happens to your equity release plan when you die.
Benefits of a living inheritance
As living costs continue to rise and modern families live longer, increasing numbers of homeowners are using their property to leave a ‘living inheritance.’ And, for some, it makes sense; especially if sufficient retirement provision is in place.
Whether money is needed for a house deposit or university-bound grandchildren, seeing your cash enjoyed when it’s needed most can be a rewarding experience.
There can be tax implications though and as this is a complex area, we recommend talking to an Equity Release Supermarket adviser about your individual circumstances.
Talk to your family
Equity release is a big financial decision which needs careful consideration. This means that you should speak to your family about your financial plans. Starting the conversation is usually the hardest part but talking about your intentions sooner rather than later – will make it easier.
To find out more information about equity release, contact the Equity Release Supermarket team by email at [email protected] or on Freephone 0800 802 1051.
