Mr & Mrs Brown are long standing clients of our sister company CWB. At a portfolio review meeting, a discussion took place about utilising some of the equity held in their property as a way of supporting their grandchildren’s education needs.
They were looking to take £200,000 to fund their grandchildren’s education, as well as a further £50,000 to boost their cash reserves and make some home improvements.
Mr & Mrs Brown’s home was valued at £1.5million and was fully unencumbered. They are unable to borrow against this with a standard residential mortgage as they are in their 70s and their income level would not meet the repayments required to repay a £250,000 mortgage in a short timescale.
Having assessed the clients’ aims and having reviewed the options available to them, we advised that they could achieve their aim by borrowing the £250,000 against their current residence, in the form of a Lifetime Mortgage.
With this there would be no requirement to repay capital or maintain monthly interest payments during the life of the mortgage, because interest would be rolled-up.
Given Mr & Mrs Brown’s age they are unlikely to remain in their property for any longer than 10 years before it becomes unmanageable. As a result, the Lifetime Mortgage will be repaid when they downsize, leaving them with enough equity to purchase something more suited to them as they get older.
We were able to release the whole £250,000 through a Lifetime Mortgage at a rate of 3.4% per annum. As a result, the Lifetime Mortgage will effectively create a debt against their estate, which in turn helps reduce their net estate value. Of course by doing this, it potentially reduces any Inheritance Tax liability.