With people living healthier and longer lives, it is not uncommon to look for sources of income other than pensions which may be limited. As time goes on, this is likely to become even more important as our life expectancy increases and pensions decrease. Many of us turn to our homes as a way of funding ourselves through retirement, particularly where a mortgage has been paid off for a while or where our homes may have significantly increased in value.
Equity release is becoming increasingly popular amongst retirees. The Equity Release Council sets out the basics of what this is, but essentially it is a way to release value from your home by re-mortgaging without having to sell it or move. You must own the property outright or only have a small amount left to pay on your existing mortgage. There are various types of equity release mortgage available, but they all enable you to take out cash against your home. Once the property is sold, either on your death or when you move into care, the mortgage is paid off.
How will this affect my will?
The effect that a decision to take out an equity release mortgage may have on your will is going to depend on a number of factors, including:
- It can reduce the value of the inheritance you leave behind for your loved ones. By taking out an equity release mortgage you are reducing the amount of money that will be left once the property is sold, thereby reducing what is left as part of your inheritance. While it is not possible to be in negative equity at the time of sale, it may be that the value of your property is more or less the same as the repayment to be made to the lender. This will mean that there may not be much cash left at the end of the process.
It will also not be possible to leave a property to a loved one as the rules of an equity release mortgage mean that it must be sold when you pass away. They will, however, benefit from the residual value as a cash inheritance.
- You may need to re-word you will. If your will includes sums of money left to your loved ones that are based on the value of your home, an equity release scheme is going to change that so you will need to revisit your will and update it. If you have used percentages rather than fixed amounts then there is no need to make any changes as those will be applied to the residual value once the property has been sold and the lender has been paid.
What other reasons are there to review my will?
There are a number of other times when you should review your will. If you marry, divorce, re-marry, or cohabit with someone, or if there is a death in the family, or your financial circumstances change it is advisable to review your will to ensure it still complies with your wishes.
For advice and guidance on estate planning and probate administration, talk to us at IWC Probate Services. You can drop us a line on firstname.lastname@example.org or call us on 020 8017 1029 for a discussion or to make an appointment.