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Inherit a Mortgage
A new type of mortgage product is being offered to UK borrowers,
one that eschews the basic principle of all other mortgage types,
that being that the borrower has to arrange in some way to repay
the money lent.
The cynical among you may be thinking that a mortgage that you
never have to repay is too good to be true, there must be a catch
right? Well you’d be half right… The idea behind these
mortgages is that the borrower arranges for the debt to be passed
to their children upon their death, in effect the children will
inherit the house, along with the mortgage attached to it.
The whole thing acts in much the same way as an interest only
mortgage in that the borrower does have to make monthly payments,
but these are purely to cover the interest charges and do not
go toward repaying the debt. This has the advantage of keeping
the monthly cost of the mortgage to a minimum, the drawback being
that the borrower isn’t actually gaining ownership of any
more of the property above and beyond the initial deposit that
they made.
Upon the death of the originating borrower, the house (technically
the equity in the house that had been paid for) passes to the
receiver (typically a family member, although it is not limited
to next of kin), at which point that person has to decide whether
to take on the mortgage, or arrange to repay the debt.
This new form of mortgage raises a number of questions, firstly
there is the issue of what real benefits does this bring to the
market? After all, if the borrower never repays the mortgage,
then what is the distinction between this and renting? The astute
among you may have picked up on the main difference, which being
that the house is passed down, and there is no landlord to worry
about (other than the bank).
Another key point to consider is just how selfish this is; think
about it for a second. The vast majority of parents want the best
future for their children, so is leaving them a nice large debt
in the will really a good thing to be doing? It does have its
merits, for one it will avoid a potentially hefty inheritance
tax bill, and the benefactors will receive some value thanks to
the fact that some of the property will be paid for, but even
so, inheriting a mortgage is nowhere near as nice as having a
fully paid for home fall in your lap.
All this leads to the next question – so what? Look at
it this way, your children will be inheriting something of worth
(the equity of the home), the tax man isn’t going to be
able to get his hands on as much inheritance tax, and as for the
slight twinge of guilt that you aren’t leaving much behind
to your loved ones, well it can be argued that guilt is only experienced
by the living….plus you earn the money, why not enjoy spending
it throughout your life?
Whether this style of mortgage catches on remains to be seen,
they are very new to the market and are by no means widely available.
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