Can I Protect The Equity For My Beneficiaries?
This will depend on the type of equity release plan. With a roll-up lifetime mortgage the nature of the scheme will result in the balance increasing over time, as interest compounds. Therefore, the net equity remaining will reduce & theoretically could erode all the beneficiaries inheritance. However, even if the balance exceeds the value of the property at death, or on moving into long term care, the no negative equity guarantee kicks in which will ensure the beneficiaries can never end up owing more than the value of the house.
However, this does not guarantee any equity will be passed onto the heirs, only that they will incur no debt. Therefore, by repaying some or all of the interest will ensure the restriction of the compounding effect of the balance. This can therefore help maintain a level equity release balance. Keeping the balance level & hopefully the property value either remaining level or hopefully increasing in the future, will ensure the beneficiaries will receive some inheritance.
Another way that lifetime mortgage plans can secure the equity in the property is by the inclusion of a protected equity guarantee which certain lifetime mortgage companies now provide. This protected equity guarantee needs to included from the outset of the plan by stating how much of the property value you wish to retain at the end of the day. This can restrict the size of the initial release as the lender needs to cover the guarantee at the end of the day.
Finally, home reversion plans truly guarantee an inheritance by the nature of the scheme. By selling a percentage of the property to the reversion company will ensure that the unsold portion will always remain theirs & ultimately their beneficiaries. Therefore, if 40% of the property was sold to raise a lump sum, the remaining 60% would be guaranteed to be passed to the heirs to the property.
