Can I Still Leave Inheritance To My Children With Equity Release?

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Written by Daniel Tannenbaum on June 9, 2021

Updated June 10, 2021

Yes, you will absolutely be able to leave inheritance for your children and grandchildren if you are taking out an equity release mortgage.

With an equity release product you are releasing money from your home (around 20% to 60%) and using this towards things like home improvements, paying off debts or to top up your pension.

The most common product is a lifetime mortgage and this is where the loan amount and monthly interest is rolled up and paid to the lender when you die or go into long-term care. Any money leftover in the property and any other savings you have are then available to your children as inheritance.

So by using equity release, there will obviously be a little less inheritance for your children than before – but anything left over after paying back to the lender will be available to them and there are other protection schemes and things you can do to protect your inheritance too, as we discuss below.

 

Key Points:

  • Yes, you will be able to leave inheritance if you have an equity release plan
  • Any money left over after paying off your loan is available for your children and grandchildren
  • There are options and plans you can use to protect your children’s inheritance
  • Options include a Protected Equity Guarantee, Interest Payment Plans and Drawdown Lifetime Mortgages.

 

Protected Equity Guarantee

Many equity release companies offer a safety feature known as a ‘inheritance protection guarantee’ – and this allows you to put a percentage of the property value aside for your children’s inheritance.

So if you wanted to put 40% of the property’s value aside for your children, the maximum amount that the lender can offer you will just be reduced by 40%.

 

Interest Payment Plans

You can select an interest only lifetime mortgage which can give you the option to make overpayments and voluntary repayments to bring down the overall cost of your loan.

Your equity release loan will simply accrue more interest over time and the longer you live, the more interest will be owed.

But some plans give you the option to make ad hoc repayments or a certain number of voluntary payments each year – so this can limit the compounding interest and allow for more to be kept aside for your children as inheritance.

 

Drawdown Lifetime Mortgage

With a drawdown lifetime mortgage, you can be approved to borrow a certain amount (e.g £100,000) but you can draw it down as and when you need it.

Rather than taking a full lump sum and allowing for it to accrue interest, you can only release what you need e.g £20,000 or £30,000 and pay interest on that amount. This could be perfect for things like home improvements or paying for a wedding – whilst giving you the option to drawdown more later on if you need to.

 

Your Children Will Maintain Ownership of The Property When You Die

An equity release product is just a type of loan, so once you die or go into long-term care, the loan amount and interest is paid back to the lender and the loan is closed. Therefore, your children are still able to retain 100% ownership of your property once you pass away.

The only difference would be if you used a home reversion product which involves selling off a physical chunk of your home. This is less common, but popular for releasing as much as 80% or 100% of your property, in which case the majority of the home would belong to the equity release provider and likely sold once you die.

 

Your Children Will Benefit if The Property Increases in Value

If you have taken out an equity release product and have planned to put money aside for your children as inheritance, both you and them will continue to benefit if the property increases in value.

If you are adding home improvements to the property, such as loft conversions, extensions or making additions for senior living, it will certainly go up in price.

Or for many equity release customers who are still in their 50s and 60s, there may be another 30 or 40 years that they will still be living in their property and this is plenty of time for the house to increase in value.

To discuss your equity release requirements today, you can get a free and impartial quote from Lending Expert here >>

 

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