CASE STUDY – Using a Lifetime Mortgage instead of Surrendering Investments

Our clients (aged 67 and 72) wanted to move closer to their Son and his family (a HNW client of ours). The problem is that the area was more expensive so they would need funding. Having paid their mortgage off, the parents did not want to cover the cost of a mortgage. Instead, the son offered to cash in some of his investments to pay for the property outright. However, his wealth manager wanted to explore whether it would be better using a lifetime mortgage instead of surrendering investments.

As the son was the sole beneficiary of the estate, the parents were not too concerned on how this was funded. However, they were adamant that they did not want to make any monthly payments using their pension income. The son, however, wanted to make sure monthly payments were made to avoid any roll up on interest.

The Solution

After liaising with all parties, the parents took out a lifetime mortgage to fund their purchase. The product allows for monthly payments which the son will service. This will avoid rolled up interest and maintain the estate. If the son does not pay the mortgage, this will trigger the roll up of interest. This meant that the parents would not have to pay any monthly payments under any circumstances. The only effect of the son no longer servicing interest payments would be a potential reduction in the value of estate (of which he is the sole beneficiary) due to rolled up interest. The no negative equity guarantee means that the parents are secure in their home until they pass away or move into care. A condition of the mortgage offer is that they have independent legal advice.

For the son, after we provided him with details of the mortgage, he spoke to his wealth manager to seek independent financial advice. As the mortgage was fixed for life, his wealth manager was confident that he could get a higher return by leaving his funds investment over the medium to long term.

So the parents got to move close to their family. They never need to make any payments on a mortgage and are secure in their home for the rest of their lives.

The son keeps his investments over the long term while servicing the interest payments on his parents mortgage. He can use his investment funds to clear the mortgage at any time if he feels this is viable.

Proceed with Caution

Using a lifetime mortgage instead of surrendering investments requires specialist advice. We only offer advice on the most suitable lifetime mortgage for a client, not whether this is the right approach.

To confirm this, you would need to speak to an Independent Financial Adviser who specialises in Investment Advice and Estate Planning. They should compare the costs of funding vs surrendering investments while considering the potential risk of eroding the value of an estate.

It’s not the right approach for everybody. However, in the right circumstances, lifetime mortgages can be considered as a viable alternative to surrendering pensions and investments, but only if it’s right for an individual’s circumstances. However, it’s crucial to seek independent financial, legal and mortgage advice before proceeding.

If you have a lifetime mortgage enquiry, contact us for impartial and obligation-free advice.