Concern that there will be no equity left in their house to pass on after their death can drive clients and their advisers in search of lower interest rates.
But in doing so, are they potentially seeking the wrong answer to the question “how can I ensure I pass on more of my home when I die?”
It is possible with some plans on the market to guarantee a percentage of a client’s equity will be passed on after they die (or move into long-term care) and the house is sold to repay the debt.
These ‘guaranteed inheritance features’ work by protecting an element of the loan a client leaves untouched.
For example, David qualifies for a lifetime mortgage of £100,000 on his home with a more 2 life plan.
He decides, however, to only take £50,000 of this as an initial advance.
With a guaranteed inheritance feature, 50% of his home’s value – equal in percentage terms to the 50% of his LTV he left untouched – will be protected and passed on to his estate when he dies regardless of how long he lives and (therefore) how big his debt becomes.
So even if the debt on his loan grew to match the value of his home at the point of sale, 50% of the house’s value would still be paid out to his estate.
So, if his home was sold for (say) £200,000, his estate would get at least £100,000 regardless of the amount of the outstanding debt.
For more information on Lifetime Mortgages contact us now 01204 884 545.