Mr & Mrs G Ask:
We are retired and have pension income which we top up from our savings. Low interest rates mean that we have to use some of our capital each year and our savings have reduced to a level that worries us. We could downsize but are reluctant to do so. A Lifetime Mortgage is an option but we are concerned that it means there would be very little we could then pass on to our children when we die. Do we have any other options?
Peter Sharratt Answers:
Ultimately it is a case of reduce your outgoings and live within your Income. Sell your house and buy something cheaper to release some capital or take out a Lifetime Mortgage*. The first two are reasonably straight forward so I will focus on the Lifetime Mortgage. This enables you to raise money from your house without the obligation of making monthly mortgage payments. Any interest is added to the loan which over time will increase and due to compounding (paying interest on interest) the increase can be quite dramatic; typically the mortgage doubles every 10 years.
Over time you would hope that your Property would also increase in value, it could decrease however. The mortgage is eventually repaid from the sale of your home when you have both died or need to go in to Long Term Care. This means there is less money (and potentially none at all) to pass to your children. Whilst a concern (you need to judge for yourselves how important this is) I do think your own happiness/security in retirement should be the priority – you do not get a second chance at retirement. Also, if you have to go in to Long Term Care the value of your estate may be reduced or lost totally paying Care Fees. In which case your children may end up with nothing anyway and you have deprived yourselves during your retirement for nothing.
The financial position of your children may have a bearing. If they are secure even more reason to consider a Lifetime Mortgage (I suspect your children would agree). If they are not secure then even more reason to try andsupportthem via an Inheritance. But equally, given the Long Term Care risk you could consider a Lifetime Mortgage and gift some money to them now probably at a time when they need it the most. A Lifetime Mortgage could affect your entitlement to means tested benefits and as always get independent financial advice.
*This is a lifetime mortgage, to understand the features and risks ask for a personalised illustration.
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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.