The lifetime mortgage equity release scheme is one of the most popular types of these schemes available today. The way this scheme works is quite simple. It allows individuals to borrow money against the current value of their property without any need to make monthly payments. The effect of therefore having no reduction in family budget is a great reason for this type of loan. Yet you want to check on all facets of the scheme including inheritance tax liability.
Interest Discussions for Lifetime Mortgages
The lifetime mortgage equity release scheme is arranged on a predetermined interest rate basis. This way, you can find out the amount of interest that is charged in the future. You can also know the interest added to the principle loan amount. As you are not required to make any monthly payments, interest gets compounded against a fixed rate of the loan amount taken. Your key features illustration will clearly state the balance of the loan over the forthcoming years and can aide in calculating the inheritance tax liability left behind at the end of the day.
Advice from Experts
The interest is usually charged on a yearly basis. However, before making your final decision, it is recommended to consult an adviser. Some lifetime mortgage providers such as New Life Mortgages and More2life do charge interest monthly, hence caution should be taken when a comparison is being made to the other providers. So long as the mortgage loan remains unchanged, the interest will be charged depending on the increasing principal amount. The repayment of mortgage loan is usually made either after the death of the borrower or after selling the property. Therefore, there is the security of knowing the year-on-year balance is an important feature.
With the ownership of the property being retained by the applicant, then also any escalation in the property value will be retained. This is another important consideration and should one feel house prices will increase over the years, then the roll-up lifetime mortgage would also be more favourable.
Alternative to Lifetime Mortgage
Before going into the general terms of lifetime mortgages, you also need to be aware of other equity release options. There is an alternative to a loan with interest, which could affect the inheritance tax too. Through home reversion you can sell your property all or in part. As you sell the estate it is no longer a part of your will, but the funds received from the estate can be depending on how you go about the sale.
For instance, if you only sell a part and leave the other part to be sold at your death, then your beneficiaries automatically inherit those funds. The amount is based on the change in home value such as appreciation of the home and thus the amount left to be sold at your death.
As you have to consider the interest rate with a lifetime mortgage it is helpful to also think about alternatives in which interest is not accrued. With a sale you do not have repayment or interest making it a viable alternative for someone who is worried about losing inheritance to the entire lifetime mortgage equity release.
General Features of Lifetime Mortgage Equity Release
Cash released from this scheme is tax-free, being classed as a release of capital. The only potential tax payable would be tax on any savings left on deposit. As the interest rates are fixed, fluctuating inflation is no longer a point of concern. With this lifetime mortgage scheme, you can now safeguard some amount of property value for your heirs by way of an inheritance protection guarantee available with both Aviva and More2life.
Things to Consider Before Applying:
• Assessment of your monetary requirements, now and in the future
• Likelihood of moving in the future
• Drawdown facility required?
• Interest calculation technique
• Early repayment penalties
• Equity protection
Equity protection can be placed on your lifetime mortgage and warrants further discussion. Protection in the form of an inheritance guarantee ensures there is a portion of home that cannot be rolled into the mortgage, should interest accrue over the amount considered in the original lending process or if the home depreciates.
You also have protection in the form of negative equity clauses. The clause states no negative equity can occur meaning the loan can never be more than the home value.
Valuation fee, costs, lender fee and solicitor’s fee would be additional considerations before opting for lifetime mortgage equity release schemes. However, it is always best to shop around to find the best equity release scheme available as these mortgage lenders do have special offers. These can include free valuations, cashback deals or even reduction in standard interest rates. Also remember your inheritance tax liability in terms of affordability for your beneficiaries.