Should Life Insurance be Taken Out to Protect the Halifax Retirement Home Plan or Any Other Interest Only Lifetime Mortgage?
As with any financial commitment, major consideration must always be given to the longevity of the loan, particularly in the case of interest only mortgages for pensioners such as the Halifax Retirement Home Plan. Due to the nature of these plans, the interest only mortgage repayments are set to potentially run beyond the normal 25 year term of a conventional mortgage. Especially given the ages involved here, more thought should be placed upon mortgage protection as health issues are more likely to be prevalent.
However, as with most, there is no insistence placed by the Halifax Retirement Home Plan or from the remaining lifetime mortgage providers that any life cover be taken out. Nevertheless, common sense should prevail and in conjunction with your experienced financial adviser an overall strategy should be put in place. The Halifax Retirement Home Plan is no exception to this rule.
Why have Life Insurance?
Should a person die on a jointly held mortgage, then the surviving partner still has the interest only mortgage to pay. If they are reliant on their partner’s pensions, then this could cause much heartache emotionally and financially; even more so given their long term partner is now deceased and not around.
The Halifax Retirement Home Plan still functions like a normal mortgage and as such the monthly payments must be maintained otherwise the standard procedures for repossession could be enforced by the lifetime mortgage lender. Herein lies the danger.
But before applying for a life assurance scheme, questions should initially be asked regarding the financial outcome should you or your partner die: –
Is one of you the main pension income recipient?
If so, how would the survivor manage financially on their remaining income alone?
Will they be in receipt of a percentage of their partner’s pension if widow’s benefits were included? Would they want to stay in the current residence or would they need to downsize to a more manageable property should either person die?
All Lifetime Mortgages Require eventual Repayment
The focus might be on Halifax products, but rest assured that all lifetime mortgages are going to need repayment. Some just act a little different than others. With the interest only mortgage the surviving spouse has to be concerned with monthly payments particularly if the retirement funds are running low. Yet, what happens when there are other mortgage products without any repayment until the end?
All other lifetime mortgages outside of interest only plans could lead you and your family to troubling situations in terms of inheritance. Interest compounds onto other lifetime mortgages like drawdown, enhanced, and roll up. The interest keeps accruing as long as the mortgage remains unpaid. If a spouse passes on, but the surviving spouse is named in the lifetime mortgage agreement it means the interest can keep accruing. This spouse can stay in the home and at the end of their life the mortgage has to be repaid.
What Happens to the Inheritance?
If you do not have insurance to cover your lifetime mortgage, the loan and interest keep growing and at your death it all has to be paid back. Where are you going to get the funds to repay the mortgage? Well, actually your family will be responsible for the estate, but basically they will have to sell the home. By selling the home they can pay off the mortgage in full. If the value of the home is the total owed in mortgage and interest then there is no inheritance from the house sale to go to your children.
This is again where life cover comes into play. If there is a life insurance policy for your spouse or both of you then there can be a way to pay off the lifetime mortgage without selling the home. If the home is sold then the life cover payout can be used as inheritance.
Leaving your Children with Options
When you take out life cover to help you with a lifetime mortgage, you are giving your children options. It is very important that your family have fewer worries about the estate once you and your spouse move on. It is extremely difficult to lose a loved one and find you are responsible for paying off debts. If the estate cannot cover it then there is a potential issue with debt collectors. While most estate laws cover the beneficiaries from having to repay debts after death, the estate can be completely zapped of any inheritance for those beneficiaries.
Your lifetime mortgage adviser should broach these kinds of issues with you. All these scenarios require careful consideration, not only with your partner, but we would suggest the children or beneficiaries should also have an input here.