Interest only mortgages..What if I die?

56cheffy

I fully understand that when you die you have to have provision to pay the outstanding loan in full.

I let several properties (5) all on interest only mortgages.

I am leaving my estate to my son (currently 17 years old).

It is my intention at some stage in the future to sell one or two that have lots of equity to pay off the others.

But what happens if say I were to die tomorrow?

Do the banks expect the mortgages to be paid up in full immediately or would they allow my son time to sell one or two of the houses to pay off the debts? Inheritance tax would come in to the equation.

Would they allow the tenants to carry on living there in the meantime paying rent as long as my son carried on paying the mortgage, presumably from my estate?

If I were to die after my son had reached 18 years old would banks ever consider giving him mortgages on the properties?

Any help and advice appreciated and if you can see any problems I could encounter advice would be appreciated.

Thanks.

jamesd

You don't have to have provision to repay a mortgage when you die.

Your executor would probably end up having to sell some of the properties to cover the inheritance tax. Your son would have some time to arrange mortgages on the rest while waiting for the process of sorting out your estate to finish.

Life assurance sufficient to pay the inheritance tax bill and the mortgages is the simplest route for him. Enough to cover inheritance tax plus paying down all mortgages to 75% LTV and say 130% rental cover next most likely to let him keep them all, since that's likely to make them all self-financing.

Finding a way to get him to be a mortgage payer as soon as possible would also help establish a useful mortgage paying credit history for him and could help. Finding a willing lender once he's 18 and giving him a property at whatever LTV and rental cover the lender requires could be the neatest way to do that.

TonyMMM

I can give some advice having just been executor of an estate, not on the basis of any other qualification.

I assume you have made a will ? ...if not you need to arrange one asap (and you would need trustees to be named until your son is 18) . Your executor will need to establish the amount of the estate - which (simply) will be the total asset values minus debts and funeral expenses ....the NET amount is then subject to Inheritance Tax.

In effect, if you have no life insurance in place to pay off the mortgages, they will have to be repaid by the executor, and your NET estate will only be the amount of any equity in the properties .... so the properties would be sold by the executor to release the funds or your son would have to raise his own funding to repay the mortgages. He would need to meet whatever lending restrictions in terms of LTV, income etc. were in place at the time.

56cheffy

Thanks for the speedy response guys......:beer:

One more question.

What's LTV?

herbiesjp

LTV = Loan To Value

The value of the mortgage against the value of the property expressed as a percentage

i.e. a 75k mortgage against a £100k property is 75% LTV

chappers

Simple answer is to take out life cover to cover your liabilities, I wouldn't bother about covering the inheritence tax as this will change over time, you talk about capitalising to reduce your liabilities so don't forget to alter your life cover accordingly, when you do.