Equity Release

I took out ER after careful consideration and 10 months in am pleased with the results. I chose to pay off my mortgage and buy a campervan with it. I pay off the interest each month so no huge debt accruing. Am looking to pay it off entirely once early repayment penalty is reasonable. Worked for me!

We looked at Equity Release as two years after retiring DH is still waiting for his pension to be paid!! It's a long story!! But ultimately having decided Equity Release was not for us - the amount of post following our enquiry is ridiculous and has to be seen to be believed!!
No!! does not compute as far as these marketing companies go!! Is sod off strong enough??

There is currently an advert on the radio for an equity release company and ut really gets my back up. . It has a couple telling her parents that they are going to need a bigger house as they are expecting a baby. I actually think the soon to be Granny is inappropriate in her reactions and questions, but that is another matter. After the dialogue, you hear the suggestion that equity release is a good way for the older parents to release capital to help the younger family to buy a bigger house. To be fair, there is mention of the point that ER is not for everyone as it can affect inheritance and entitlement to some benefits, but to me it is all wrong. There are too many pitfalls which are not made clear.

Equity Release and Lifetime Mortgages are 2 different products.

I know of someone who took out equity release some years ago to pay off a mortgage that had to be taken out to cover some unfortunate and very unexpected debts. Because of the circumstances of the debt her children, who were young adults at the time, agreed this seemed the only way out.
She is now in a care home with advanced dementia and no POA.
Her children have now read the small print again and with some maturity understand it better. They have discovered that unless the debt is repaid within twelve months (i.e the property sold) a hefty daily interest is added.
18 months on in the current housing market means the modest property has yet to sell and her children have already seen any remaining funds totally wiped out.

If you don’t have children and any inheritance is likely to go to those who are not really important to you I would think about doing it. Otherwise I would certainly avoid it. Also your age has to be factored in. Too early in life and you may have other needs later on but the equity in your home has shrunk. So an elderly childless couple might find this an option to be explored. Personally, I don’t like unnecessary debt.

Jules59

My mum and dad took £25k out of their home on equity release for a new car and bathroom.
Rate was 6.25%
Dad passed away first
When we sold Mum’s house to fund her care home, the loan repaid was £82k.
Luckily mum wasn’t aware as she had always wanted to ensure her children benefited after her death abd we didn’t tell her

😳😲

My mum and dad took £25k out of their home on equity release for a new car and bathroom.
Rate was 6.25%
Dad passed away first
When we sold Mum’s house to fund her care home, the loan repaid was £82k.
Luckily mum wasn’t aware as she had always wanted to ensure her children benefited after her death abd we didn’t tell her

cc Equity release interest rates are not fixed for the duration of the contract. The Equity release scheme we were offerred had a rate set for the next 5 years and interest thereafter will be negotiated for fixed terms, as with a mortgage. We have chosen to pay the interest monthly as with a mortgage,

The difference in cost between equity release and Retirement Interest Only mortgage is negligble. The main difference is that while a RIO mortgage means the interest rate payment each month is compulsory, with Equity Release, it is entirely voluntary.

As others have said, with interest rates so high and fixed for the duration of the contract, it is the compounding of the interest which is so expensive. Paying interest annually obviously stops compounding, but personally we wouldn't touch equity release with a bargepole.

karmalady

Sister in law and her husband took equity out meany years ago. Interest rates meant that by the time they wanted to move closer to their dd, they could not have afforded even a tiny house as the company `now owned `the total amount of equity in their home

Husband died, she needed to be in a care home. The 2 AC found a beautiful care home for her and both are now fully stretched in finding the fees for this place, which is near to one AC. If they had not gone the equity release route, she would have been paying for her own care and would have released a big burden from her AC. It was not worth it, for the garden and the bathroom

Your sister in law would be entitled to funding if she does not have sufficient capital or equity in her house to fund herself. Her children do not have to pay for her. They could be asked to pay a top up but that is down to the choice of home.

In the early days equity release schemes were often opportunitties for lenders to fleece older people and many people's perception of them is based on those days.

Now, equity release is governed by strict rules and is also more flexible. A friend has taken out equity release, where the total sum she can borrow is agreed, but she only takes out the money she wants when she needs it and only pays interest on the money borrowed. For example, it has been agreed she can take £100,000 equity out of her house, but to begin with only takes £10,000, whch is the only amount interest accrues on. She may never take the full amount out.

As kittylester says, you can if you wish pay the interest as you go, so that no extra debt accrues if ou wish.

Two years ago we applied for equity release to finance an extension. It was always our intention to pay the interest off as if it was mortgage, we went for equity release because the interest rate was lower than for a mortgagae and could be fixed for a longer period and with higher interest rates in the offing. It seemed the sensible thing to do.

Equity release products are much more sophisticated and flexible than they were and to to just say 'never' is foolish. If you are considering the possibility of taking one out, go and speak to a mortgage broker or similar. They will discuss your circumstances and what is the best way forward for you - and also the full consequences of any decision you may make.

Sister in law and her husband took equity out meany years ago. Interest rates meant that by the time they wanted to move closer to their dd, they could not have afforded even a tiny house as the company `now owned `the total amount of equity in their home

Husband died, she needed to be in a care home. The 2 AC found a beautiful care home for her and both are now fully stretched in finding the fees for this place, which is near to one AC. If they had not gone the equity release route, she would have been paying for her own care and would have released a big burden from her AC. It was not worth it, for the garden and the bathroom

Hi MarellaI’ve never looked back from getting equity release and like you I’ve worked all my life. Now that my income is greatly reduced I found getting equity a bonus. I’ve discussed it with my family and they were happy for us to do this they’ve both got well paid jobs and huge homes of their own they’re not wanting nor needing this inheritance. After all it’s not their entitlement . My interest rate is reasonable considering the rate I paid when first buying my home all those years ago. I even got a further sum recently to pay for a built in bath which was sooooo expensive but gives me and my sister the luxury of getting into a bath. Equity release is in my view only a mortgage in reverse from the first mortgage we had and in my view again a fabulous way to be able to afford things which is impossible to buy with a pension even a private one I’ve been able to buy a car, do the garden up good, have a couple of holidays, give some money to my kids at the time they didn’t have good income and spoil my grandchildren I would advise just go for it the house will always be yours. Good luck

Thank you so much for taking the time to write such detailed replies. Most informative and provides me with no nonsense advice. I really do appreciate it.

Equity release should be a last resort and definitely avoided in this market.

With a current base rate of 5.25%, with lenders likely to want 2 or 3 points over base, you are possibly looking at 8.25% compound interest fixed for the lifetime of the mortgage.

The older you are, the more you can borrow as the lender knows it will get its money back sooner.

Bear in mind, that lenders have minimum as well as maximum loan limits. That minimum could be far higher than the amount of money you feel you actually need. Lenders may encourage you to borrow more than you need to meet that minimum.

Cases of overselling referred to the Ombudsman are full of stories of people who were never suitable candidates for equity release, persuaded to borrow more than they ever needed.

According to Sun Life, someone age 75 with a home worth £300,000 could borrow £114,000. In ten years at say £8.25%, that will have grown to a debt of over £250,000. Were that person to live to 95, they would owe over £550,000.

With house prices going down not up, this would be very risky. Prices will recover as they always do but there have been far too many cases of borrowers finding all or almost all of their equity swallowed up by these toxic loans. Anything lent at 6% or more is considered toxic. Loans are repaid on death or if the owner goes into care but it could leave you without enough to pay for care.

These loans are not meant to be repaid in the lifetime of the borrower (unless they go into care) and expensive to get out of if you realise early on that you have made a mistake. There are punitive penalties for early repayment linked to how the stock market is performing and can be as much at 90% of the original loan.

Lenders may also write very restrictive conditions into the loan agreements more stringent than any normal mortgage including restrictions about who may live in the property.

People who took equity release when interest rates were historically low will not have done too badly but do not be tempted in this market.

I believe thete are some where you can pay the interest yearly, if you can afford to, so there is a lot of interest owing at the end.

Yes I took out a chunk to do up my dilapidated bungalow when I downsized. Didn't have enough from sale of previous house to do what was needed. I only have one daughter and no partner and she and DH were fully on board with the implications down the line. I just got the house revalued and am pleased to find it has gone up by about the same amount as what I took out. In 20 yrs (or whenever the time comes!) there will of course be a significant amount of interest to pay from my estate but I reckon this will be compensated at least partially by appreciation in house value, so DD and family will still inherit a worthwhile amount. Unless I spend the rest on care home fees. But none of us know the future so for us it was right decision. If I had more kids maybe not. You have to use a specialist financial adviser and they put you through a lot of hoops to make sure it's right for you and you fully understand. Then a solicitor goes through it all again before you sign on the dotted line. You can't go into negative equity so your heirs will never inherit debt but they will obviously get a reduced amount. I did it before interest rates went up and it's locked in- but would be quite high now I would think- so if you can wait until rates go down it might be better. No regrets here and my bungalow is totally transformed- my DD is happy as I've made it very child friendly for the grandkids to visit and sleep over!

No but heard so many bad reports about it get proper advice perhaps from Age Concern .