Equity Release

Well, of course they take up a lot of interest when you sell up. If you accumulate the interest the capital sum grows each year and so does the interest due on the increased capital sum.

It is called compound interest and it was on the maths syllabus at most schools when I was about 12 or 13. That is where I learned all about it.

The only way I can see that it can affect your inheritance tax is if you fail to live more than 7 years after the gift or it is clear that you gave the money away in order to avois paying for your care when you need it.

In my friend's case, none of these apply. The seven years is up or nearly up and she is wealthy enough to still be able to pay any care costs when they arrise. She is not accumulating interest but paying it off each month. All the company will get when she dies is the original capital she brrowed as she has not allowed any further charges to accrue apart form the normal mortgage interest, which she pays each month.

But, there are products which allow you to pay the fixed rate interest just like an interest only mortgage and interest rates are really low at the moment.

Just been warned by a financial adviser not to do this. The compound interest is unbelievable

Maybe those people had a home reversion plan rather than a lifetime mortgage, or wanted to sell up to buy a retirement property which you are told are not great options. The lender has to be confident they will be able to sell your property easily when the time comes and retirement flats can take years to sell. When you sell they take the outstanding debt and that will be greater than the amount borrowed if you took the funds and chose to make no payments. If you make payments the amount may be smaller than the original amount borrowed. Nothing is done for free.

Monica, I am not a financial advisor, I can only go by what happened to friends. I don't know all the ins and outs. As one poster says the problem I think is selling the house. For reasons I cannot go into here. My friend ended up losing alot of money when she had to sell up and I think possibly ended up paying more than she would have even with IT. I think she was badly advised. They take back a ton of interest when you sell. If you want to move to another place you are stuffed as it seems to my observation, you dont have the money from your old house to put down on the new one. Apparently , there is advice out there that says you should never use ER to avoid Inht Tax. You really need to understand all the ins and outs and loopholes, before you embark on this. As one poster says if you want to stay in your home for the rest of your life- it might work. How many of us can say for sure we will? As it is I will never pay Inht Tax anyway. However, I know two people that Equity Release did not work for. There are alot of unscrupulous and unregulated financial advisors out there. Just be careful.

You can sell and move even with a lifetime mortgage on your property.

I have been into this quite a bit as I am trying to fund my OH in his highly expensive nursing home.

It is worth remembering that the interest that accumulates on these "products" is compound - i.e. not say 5% a year on the amount of the original debt , but 5% on the whole debt as it accumulates year by year.

At the moment I am using my savings to top up the fee - although top up is a bit of a misnomer because it represents about 3/4 of the fee. My OH's savings have already been used up on his care, so now it is coming from mine as a "third party."

When my savings are gone, I have an offer of a loan from a family member, on which I will have to pay a market rate non-compound interest and the capital will be recouped when I die.

The puzzle of course is that if that too runs out then equity release will be my only option - how to release that for my third party top-up without it becoming capital for SSD purposes?

It is all a conundrum and I am taking financial advice.

But to summarize - the advice I have been given is that equity release is now hedged around with legislation and is a better bet now than it used to be.

John and Jill in my extended family. They had equity release and had their garden designed and got a new car. Years later, neither can drive and they are utterly trapped in their house. They cannot sell and afford to buy near their son. They are trapped in a house too large for them and because of the accrued interest, mostly owned by the ER company

Why is using equity release for avoiding inheritance tax a mugs game and why would you end up paying more?

I wouldn't touch it. Know two people who have gone down this route. Both regretted it, both lost large amounts of money and problems galore with selling your property. As for doing it to avoid Inheritance Tax, thats a mugs game, you will probably end up paying more.

You can take your equity release with you if you move to a property that would cover the outstanding amount or you can downsize and repay an agreed amount with the lender. Obviously if you know you want to move in the near future it would be advisable to make payments and not allow interest to build up.

I remember hearing one comment recently, possibly on Money Box Live, that you need to be sure this is the house you will remain in. I think it is possible to move a lifetime mortgage/equity release but it's probably worth bearing I mind.

Quite!!!!

Yes, if you need care , the Council will look at your potentially liquid assets whether these assets are cash remaining from equity release or saved cash and investments. Why shouldn't they?

If you go into care the Council will expect the house to be sold, equity release sum repaid and the balance left will be used to pay for your care, exactly as happens to those who own all the equity in their home.

DH and I are planningto release some equity from our house to pay for an extension that will make it more saleable when (if) we ever downsize. The amount will be relatively small and we intend to pay the interest each month, effectively an interest only mortgage, that way any increase of value in the house stays with us.

I wish people would learn the facts before giving misleading advice. When you take out equity release or a lifetime mortgage you will be given a breakdown of exactly how much you will owe each year if you choose to make no payments. Plus as the lender never wants to be in the position of being out of pocket, they will only lend the amount they know they can recover. So if your house increases in value or you pop your clogs early on the company will recover the amount outstanding and the remainder will be paid to your estate. The finance company does not stand to make a fortune. Don't forget if the borrower doesn't make any repayments they've had the use of those funds for maybe 25 years or more before it's repaid and 5% interest isn't extortionate and is fixed. Equity release is not what it used to be. That doesn't mean you shouldn't investigate it fully because you should, it isn't right for everyone.

Equity release should be seen as a last resort, if you need cash downsize and invest the spare cash in an ISA or some other safe and not too long investment. Remember your house will gain in value over the years and the finance company will make a lot of money when they get possession.

It is NOT Equity Release now. Lifetime mortgages are different and I'm not sure that Equity Release still exists.

Please read the posts by flexiblefriend, Monica and others.

Interest rates are really low at the moment so interest payments are not huge.

Be very careful gfp who you take advice from, We took out equity release 12 years ago for home improvements and furniture and some put by, within 5years the interest rate had doubled , if we had carried on like this , our house would have been worth nothing by the time we were in our 80,s we were miss sold and probably didn't fully understand the conditions, If one of our daughters hadn't been in a position to pay this amount off , I dread to think what would have happened in our real old age , so shop around and read the small print carefully, Good luck x

INTESTATE.
One post mentioned that if there was no will the estate goes to the government

No it does not

It is distributed by set rules to relations , starting with children, grandchildren, parents, siblings, all the way down to any living relatives that could be found.

There are companies that specialize in finding relatives of unclaimed estates - for a fee

Yes, but what else would you need it for if you're at the stage of needing care?
Whether they take your house or your money seems to make little difference, although I don't know much about it.

Surely if you've had some money then you'll be likely to have spent some of it by the time you need care?

The problem arises if you need care...either at home or in a home.

The council will take most of the money to pay for care.

A colleague of my dh did it but he had no family at all. He was an only child so no nephews or nieces. His wife died first and then when he retired he decided he wanted to travel and see the world. He had a good pension but not enough to travel as he wanted to. He released some of the equity in his house as he said he could not take it with him when he died. House was already paid for. He seemed happy with it though. No payment to make. He is still alive.

Trust me, I wouldn't be doing it to avoid paying inheritance tax.

I have friends who have taken out equity release and are entirely happy with their decision.

You do not have to take the whole amount in one lump sum but can draw it down as and when you need it. You only pay interest on the amount you have drawn down.

It is also a good way to reduce inheritance tax, especially if you can afford to pay the interest. A friend has done this, she gave both her children a substantial sum of money on their marriage to buy houses. As she is in her late 60s and in good health, she can reasonable expect to live another 7 years so that it is free from inheritance tax.

I agree with those who say you should take good advise but please don't just take anything Age UK offers as some of their products have been shown to be far more costly than elsewhere.

I suggest you do lots of online research and make notes before getting advice so that you will know what questions to ask.

Good luck

I thi k these are now called 'Lifetime Mortgages' now and Flexiblefriend has given a good explanation.