Can I use my inheritance to pay off a Lifetime Mortgage?
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I took out Equity Release on my home 10 years ago and chose to have the interest added to the loan rather than pay it back bit by bit. My mother died a few months ago and I have inherited £250,000. Can I use that to pay off the loan?
Diane Fish of Smith & Pinching responds:
Equity Release comes in two forms: Lifetime Mortgages, where you borrow against the value of your home, and Home Reversion Plans, where you effectively “sell” a portion of your home to the Equity Release provider. Lifetime Mortgages are by far the most common and I am assuming here that this is the type of arrangement you have in place.
Lifetime Mortgages are designed to be paid back either when you move into long-term care or when you die. However, you can pay back some or all of your loan before then, if you wish – but you may incur early repayment charges if you do so.
You will need to look at your Lifetime Mortgage’s terms and conditions to see what the charges and rules are for your particular plan. For example, many Lifetime Mortgages will allow you to pay back up to a certain percentage of the loan per year without incurring a charge but will make a charge for any repayments over that percentage. Others may limit the frequency of any repayments and some will have no Early Repayment Charges after a certain time period such as five or nine years. There may also be administration charges levied for the work involved.
Whether it would be better to repay your loan all at once, in stages or not until you move into care or die will depend on all aspects of your financial circumstances. I suggest you look at all your options with the help of an independent financial adviser who specialises in Equity Release.
Taking out a Lifetime Mortgage will mean that the value of the estate you leave to your family when you die will be reduced. It may also affect your entitlement to any means tested benefits both now and in the future. Equity Release can be more expensive when compared to a normal residential mortgage. In addition, you will still be responsible for maintaining the property.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. There will be a fee for Equity Release/mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be a minimum of £1,100. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk