Everlasting Mortgages

It seems that there is a distinct possibility that lifetime interest only mortgages, which we could pass on down the family, may be the answer to a lot of home buying problems and worries. The way the scheme works is the borrower takes out an interest only mortgage. This means that your monthly repayments are for interest only and no part of the original sum borrowed is repaid. Monthly interest payments are appreciably lower than that of a repayment mortgage. If you borrow £100,000 the saving on repayments could be around £130 per month.

A major feature of the scheme is that it means that your children will be able to inherit your home and very much reduce the dreaded inheritance tax. In the event of your death the mortgage could pass on to your children, or other beneficiary. On your death the mortgage passes on to your children, who have the choice of either continuing the mortgage payments and moving into the house or selling the home and repaying the loan. They could choose to live in the property, treat it as a buy-to-let or maybe a holiday home for family use. The implications of this as regards inheritance tax are interesting as only the value of the house, less the mortgage amount, would be counted as part of your estate.

There is no time limit on the mortgage and your children could continue to enjoy the property for as long as they wished.

Your first reaction to all this may be that you don’t want to pass debts to your children but in fact these mortgages are extremely popular in other parts of the world. The careful Swiss have found it works well for them and they’re not known for anything but neat, tidy and methodical practices, whether it is for sourcing mortgages or making cuckoo clocks! If it helps to you both pass on your home to your dependants and also reduce the amount of your hard earned money paid to the taxman, then it’s got to be worth some careful thought.

With more and more estates coming into the inheritance tax bracket (£285,000 in 2006) someone living in a relatively modest house could be affected by this tax. Many older people would be amazed to think that their estate could fall into this category.

It’s an increasingly common situation for older people to take out equity release schemes where they raise money against their home’s value to enable them to live more comfortably in retirement. These schemes can be really expensive. A mortgage which can be passed on to their children could be a far better bet. The interest rate would be much lower and this in turn would give them money to spend on themselves and they could have the pleasure of helping their children and grandchildren in their lifetime. Assuming that the equity in their home is greater than the mortgage, their children are still inheriting an asset worth more than the debt. It looks as though we’ll be hearing a lot more about inter-generational mortgages. For more information and help on this and other mortgage choices we recommend you get on line and get some independent advice.

You never know, they might eventually come up with a more user-friendly name for it ……maybe the everlasting mortgage will catch on.