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.
With recent falls in interest rates, those 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 know that I’d rather my Gran had enough money to put her heating on over Christmas than be sat in the cold trying to save the pennies, so that she can pass something on to everyone.
In another scenario, perhaps someone has always wanted to buy a new home to live in during retirement, but couldn’t afford to upsize. Maybe they could sell their house for say £150,000, and buy a new one for £200,000, without the need to affect their outgoings each month. They’d borrow £50,000 at the outset, on which interest would build up for the rest of their life, but their daily finances would not be affected. Even if someone was happy in their home, they could get some money to build an extension, do up the kitchen, or set up a new toy room for the grandkids.
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 consider unlocking the equity they have in their home and enjoy their wealth if they have a lifestyle shortfall. There’s no point in letting all the money you’ve worked for go to waste, when you could of used it to send yourself off on holidays in the sun and buying yourself consumer goods that you wouldn’t have been able to afford otherwise. I know that when I’m older I’d like to spend my golden years seeing the world and spending my money.
Even if people have it in mind that they don’t want to spend money on themselves and want to give a helping hand to the younger generation, they could use an equity release scheme to do so. By passing wealth down the generations in this way, you can make sure you can assist children or grandchildren when they need it, instead of when they are older and maybe wouldn’t have such a requirement for it. Plus, it would be nice to be able to see them move into a new home and start a new life.
This area of equity release is complex, therefore it is essential to seek independent financial advice. Kieron Bassett Financial Services have two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com/cms.
Jason Hinde CertPFS