One of the questions most commonly asked during equity release appointments is: “Can I still leave an inheritance for my family?”.
The short answer is yes. In this article, we explain how.
Leaving an inheritance for loved ones
For many of us it is important that we’re able to leave an inheritance for our loved ones when we’re gone. After dedicating our lives to looking out for those closest to us, the money we leave behind is our final gift to them.
There are many personal reasons for wanting to leave money behind for our loved ones.
Some want to leave an inheritance to help their children or grandchildren on to or up the property ladder. Others want to clear burdening loans or credit cards for their children or grandchildren so they can start afresh, whilst many simply want their younger generations to enjoy a once in a lifetime holiday in their memory.
Of course, not everybody wants to – or is able to – leave their entire home’s value to their younger generations. For some, the equity in our property is a lifeline to keeping afloat in retirement. For others, the money tied up in our bricks and mortar is ours to enjoy after years of working to pay off the mortgage.
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And why shouldn’t we unlock some of it? Today’s older homeowners are under considerable financial pressure thanks to longer lifespans, the rising cost of living and dwindling interest rates on savings and pension annuities.
The family home is often a person’s biggest asset, with the average home in the UK now fetching £206,665 (that’s £150,855 more than 20 years ago!*).
With all that extra equity just sitting there, it’s easy to see why so many homeowners are tapping into their property wealth, traditionally seen as their children’s inheritance, to provide a much-needed boost to their retirement finances.
Inheritance protection with equity release
Some people admit to being put off by equity release because they think that a plan will prevent them from being able to leave an inheritance.
This does not have to be the case.
Yes, by its very nature, having an equity release plan will reduce the amount of inheritance you leave, as you are unlocking and spending some of the capital from your home’s value.
However, today’s wide range of plans offer several ways for you to protect some of the remaining equity as an inheritance for your loved ones.
Your inheritance protection options include:
- Protected Equity Guarantee
- Interest payment plans
Protected Equity Guarantee
Modern lifetime mortgages have a security option built into them which is called the ‘inheritance protection guarantee’. Many leading equity release providers offer this safety feature.
It works by enabling you to select a percentage of the property value that you want to protect. The higher the percentage you select, the smaller the maximum loan amount available to you.
If you wish to protect 30 per cent of your home’s value as an inheritance for your family, then the maximum amount your provider will allow you to unlock will be reduced by 30%.
This inheritance protection option can be selected at little or no extra cost depending on the provider you choose. If the guarantee option is something you would like to be included in your plan then your equity release specialist will be able to search for the best option for you.
Interest payment plans
Some equity release plans now offer the flexibility of voluntary payments to reduce or prevent interest from accruing on your loan. These payments can be made as and when you wish, or with some plans, paid regularly by standing order.
The difference between this and a traditional lifetime mortgage is that, rather than interest rolling up over the life of the plan (also known as compound interest), payments back to your provider are made to reduce or prevent the interest from accruing.
In some cases, you could even repay the loan plus interest in full.
Voluntary payment options include:
- Interest-only – to keep the balance level and protect the remaining equity within your property after unlocking your cash advance. If you keep these payments up for the life of the plan then your equity (your family’s inheritance) will not be affected by compound interest.
- Make ad hoc repayments – whenever surplus funds arise, you can make a voluntary cash payment towards the balance of your plan to reduce the interest accruing on your plan.
- Utilise the maximum voluntary payment allowance each year – some providers, like Aviva, enable you to repay the entire balance over a 16 to 17-year period, depending on interest rates. In this case, all of your equity would once again be available for your beneficiaries to inherit.
Don’t rush into a decision
If you are thinking about unlocking some of your home’s equity to boost your retirement finances then it is so important to speak to an independent specialist first.
An equity release plan will reduce the amount of inheritance you leave, but an impartial equity release specialist, like Bower, can help you to ensure that some of your equity is protected if this is something that is important to you.
If you’re not ready for your free, initial home appointment just yet, why not start by reading Bower’s free independent guide to equity release? Call 0800 411 8668 to request yours or complete this short online request form.
*Nationwide House Price Index