Mortgages Ad Infinitum

Mortgages - Ad Infinitum
There are some exiting developments in​ the​ mortgage market with the​ birth of​ a​ new mortgage designed in​ order to​ allow home owners to​ pass on​ their mortgage debt in​ the​ event of​ their death .​
Whilst some people might think this is​ a​ rather odd thing to​ do,​ read on​ for the​ full story:-
The new inter-generational mortgage – surely to​ be known by something less tongue-twisting – is​ a​ product which has the​ promise of​ parents being able to​ pass on​ the​ mortgage debt on​ their home to​ their children,​ whilst considerably reducing the​ amount of​ inheritance tax paid on​ their estate.
The way in​ which this works is​ simple .​
Say,​ for example,​ the​ parent’s home is​ worth £250,​000 .​
The mortgage on​ this could be £150,​000 .​
Because this is​ an​ interest-only mortgage,​ the​ debt doesn’t reduce and the​ monthly repayments are purely interest .​
On the​ death of​ the​ parents,​ the​ house and its mortgage would pass on​ to​ their children .​
As there is​ a​ debt on​ the​ house,​ its value,​ excluding the​ mortgage,​ would only be £100,​000 and this would be included in​ the​ parent’s estate as​ far as​ inheritance tax is​ concerned .​
Inheritance tax allowance rises annually .​
For the​ year 2018/7 this allowance is​ £285,​000.
The children are then free to​ choose what they want to​ do with the​ property .​
If they decide to​ keep the​ home,​ maybe as​ a​ buy to​ let or​ for a​ family member to​ live in,​ then they continue with the​ mortgage,​ as​ there is​ no fixed time limit,​ unlike the​ situation with a​ normal mortgage .​
As long as​ the​ value of​ the​ house is​ more than the​ mortgage,​ then the​ children have still been left an​ asset of​ value.
Whilst the​ very thought of​ this type of​ loan is​ new to​ the​ UK,​ it’s already extremely popular in​ some other countries .​
The Japanese and Swiss have adopted the​ product with enthusiasm and neither of​ them are known for their lack of​ business acumen.
Where houses have risen in​ value over the​ past years,​ inheritance tax is​ proving a​ very real problem to​ people who would never have previously considered themselves wealthy enough to​ be in​ that tax bracket.
For older home owners,​ who might be finding their retirement years more expensive than they expected,​ they might find this mortgage useful .​
Borrowing on​ this basis would be at​ a​ much lower interest rate than the​ costs involved with equity release schemes and would release money to​ help the​ family during their own lifetime,​ rather than the​ tax man after it.
Interest only mortgages in​ themselves are not new,​ having grown from 18% to​ 30% of​ all mortgages in​ just two years .​
Prices of​ property are still rising faster than most young people can scrape together the​ deposit for a​ home and an​ interest only mortgage may be their only way to​ get that all-important first step on​ the​ home-ownership ladder.
Although the​ prospect of​ house prices actually falling,​ leaving people with negative equity in​ their homes,​ is​ always a​ possibility,​ over the​ medium term property has remained a​ stable investment .​
There seems to​ be no reason to​ doubt that this will continue.
Monthly repayments are very much more affordable on​ an​ interest only basis,​ and you​ could save around £130 per month on​ a​ loan of​ £100,​000,​ compared to​ a​ comparable repayment mortgage.
However,​ you​ must bear in​ mind that the​ original debt is​ not being tackled .​
Whilst the​ inheritance tax saving aspect is​ an​ interesting thought for older couples,​ maybe youngsters should consider the​ interest free loan as​ a​ step up on​ the​ ladder rather than a​ permanent ball and chain.
If all this is​ new to​ you,​ the​ easiest way to​ find out what’s on​ offer is​ via the​ internet .​
a​ broker will be up to​ date on​ what’s going on​ in​ the​ market and find out what’s right for you.

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