Most people with a mortgage will have always had it in mind that they wanted it paid off by the time they retire. There is, however, a type of mortgage that you can have for the rest of your life and not pay one penny back for as long as you live. In my opinion it’s one of the most under-used financial products available and it could benefit thousands of over 55’s. The main reason that we don’t have so many people taking out these types of mortgage is simply because they do not know about them.
Some types of equity release mortgages allow you to receive a lump sum, to which you make no monthly repayments. Instead the interest on the mortgage rolls up, and the entire amount is repaid when you die from the proceeds of the sale of your property. There are provisions in place with most equity release schemes which mean that the amount on which you owe can never exceed the value of your home, meaning that even if you ended up owing a lot more than what you home was worth, you wouldn’t need to pay it all back.
In an era of low interest rates, elderly savers that have relied on the interest from their bank accounts to live on for many years may be finding it hard to cope with the drop in income. Why not use some of the equity they have in their homes to live more comfortably and enjoy themselves? Many people don’t want to reduce the value of their estate so that they can pass something on to their family, but I think most families would rather see their parents and grandparents living comfortably than receive a bigger inheritance for themselves.
If helping the younger generations was the most important thing to you, you could find that you are able to gift them some money via an equity release scheme, to provide them a deposit for a home or other financial assistance. It is often more beneficial for people to receive money in earlier life, so even though they may end up with less in the end, they will benefit more by say, being able to buy their own home sooner.
Another way these types of mortgages can be used is to upsize property in retirement, when you are ineligible or unwilling to meet the monthly mortgage payments. For example you could sell your house for say £150,000, and buy a new one for £200,000, without the need to affect their outgoings each month. You could borrow the extra £50,000 at the outset, on which interest would build up for the rest of your life, but your daily finances would not be affected.
Then there are those who own a home and do not have anybody that they wish to leave money to. I would say that a lot of these people should at some point release the equity they have in their home and enjoy their wealth. There’s no point in letting all the money you’ve worked for go to waste, when you could of used it to enjoy your life.
Jason Hinde CertPFS
12th March 2018