[Finance] Equity release

[Neville's Breakfast]

I'd like to understand how you came to your conclusion. So, if someone loves where they live you think it best for them to move to a new home where they may not be happy when they have a no risk option of not being unhappy. Equity release rates are fixed for life so, at the outset you will know exactly what your balance will be throughout the whole term. I don't get your logic.

Doesn’t that rather depend upon what they are giving up in order for them to release the cash ? The figures determine how good or bad a deal it is.

 

[phoenix]

I'd like to understand how you came to your conclusion. So, if someone loves where they live you think it best for them to move to a new home where they may not be happy when they have a no risk option of not being unhappy. Equity release rates are fixed for life so, at the outset you will know exactly what your balance will be throughout the whole term. I don't get your logic.

Quoted from my friend
"I love where i live and can stay here after having to leave work due to illness i cant really downgrade my property" So we used the figures given to him by a equity release company , and worked out in 10 years he will pay back £19 K in iterest but his property will be worth £100k more at 5% growth. And he has no financial worries for the rest of he's life This included having to cover 2 years where he is unable to work .

I think he is as happy as ive seen him in years,

 

[Neville's Breakfast]

Quoted from my friend
"I love where i live and can stay here after having to leave work due to illness i cant really downgrade my property" So we used the figures given to him by a equity release company , and worked out in 10 years he will pay back £19 K in iterest but his property will be worth £100k more at 5% growth. And he has no financial worries for the rest of he's life This included having to cover 2 years where he is unable to work .

So you are saying it’s just a mortgage and there are no other consequences other than paying interest ? So why does it have a different name ? Also, can you give figures for the mortgage interest rate so we can compare with other products ? Also, are these products being sold to people with no income and if so how do they repay the interest and why can’t they get a conventional mortgage ?

 

[timbha]

Quoted from my friend
"I love where i live and can stay here after having to leave work due to illness i cant really downgrade my property" So we used the figures given to him by a equity release company , and worked out in 10 years he will pay back £19 K in iterest but his property will be worth £100k more at 5% growth. And he has no financial worries for the rest of he's life This included having to cover 2 years where he is unable to work .

I think he is as happy as ive seen him in years,

Clearly it’s horses for courses. My very rough calcs estimate a property value of £200k and ER of £20k ??

I hope he achieves his 5% property value growth pa (or more) but there is no guarantee.

 

[HalfaSeatOn]

Quoted from my friend
"I love where i live and can stay here after having to leave work due to illness i cant really downgrade my property" So we used the figures given to him by a equity release company , and worked out in 10 years he will pay back £19 K in iterest but his property will be worth £100k more at 5% growth. And he has no financial worries for the rest of he's life This included having to cover 2 years where he is unable to work .

I think he is as happy as ive seen him in years,

Staying put in a happy place is a big plus. Would be useful to know the figure he borrowed. Did you factor in compound interest? ie paying interest on interest over those 10 years

 

[phoenix]

Staying put in a happy place is a big plus. Would be useful to know the figure he borrowed. Did you factor in compound interest? ie paying interest on interest over those 10 years

£40,500 at 4% compound interest = £59k after 10 years and he also has a 10K option to use if required at the rate when its taken out if necassary . These are personal figures for my friend but. He had the option of 2 years no money and still paying a mortgage. One other important factor he has just mentioned. sorry, he just mentioned this he has a small mortgage already which has to be paid off (10K)
After the 2 years he qualifies for pension from the gov.
he can also keep the interest under control as he can pay up to 12% of the 40k off per year keeping his interest down. When he gets gov pension he will probably do this.
His small property is worth 190k it was purchased for 140k 5 years ago.So There is no reason to think the property value wont go up in value a lot more than the interest on the loan and if it doesnt it doesnt.
Im only passing on the facts he has given me and realise that its each to their own, so to speak.

 

[phoenix]

Clearly it’s horses for courses. My very rough calcs estimate a property value of £200k and ER of £20k ??

I hope he achieves his 5% property value growth pa (or more) but there is no guarantee.

Its not relevent if he does or does not get the growth, as the lifetime mortgage is a fixed interest rate. But if you think a property at 190K wont be worth 210K in 10 years i would suggest thats stretching it a bit.
For him its a new lease of life. He has 2 children who are really pleased to see their Dad in a good place mentally.

 

[phoenix]

Staying put in a happy place is a big plus. Would be useful to know the figure he borrowed. Did you factor in compound interest? ie paying interest on interest over those 10 years

£19k with compound. + initial ammount borrowed.

 

[Igzilla]

Not for me, however slightly different i keep getting asked due to my age if i want to take a lump sum tax free from my pensions, any thoughts on this? A couple of work mates have done this and brought static caravans as an investment.

if you’ve been contacted out of the blue avoid them like the plague. Too many stories of people being relived if their entire pot by scam merchants, and also people ending up with a large tax bill.

not being rude, but i wouldn’t can’t imaging a static caravan being an appreciating investment, but i maybe quite wrong.

When my mum passed away, this is what the man she was married to did. He sold their home, had the cat put down and bought a static home on a site down in Cornwall. Sounds idyllic, right? The place was a shithole, it was over 55's, no dogs, only 1 cat per home allowed, no kids allowed. When he thankfully died, it took us over a year to sell the wretched place and even then, at a considerable reduction to what he paid for it in the first place.

 

[timbha]

Its not relevent if he does or does not get the growth, as the lifetime mortgage is a fixed interest rate. But if you think a property at 190K wont be worth 210K in 10 years i would suggest thats stretching it a bit.
For him its a new lease of life. He has 2 children who are really pleased to see their Dad in a good place mentally.

Yes, that last bit is very important and I’m pleased for him. I was just trying to get across, in a general way, that there is no guarantee that property prices will always go up. A sustained property price fall, however unlikely given performance in the past 30 odd years, could harm or even wipe out any inheritance.

Good on him though, it’s probably the right thing to do at this stage of his life when seeing your kids happy is top priority!

 

[Weststander]

Temper expectations of guaranteed and significant property price inflation.

We’ve entered difficult economic times for many.

 

[Neville's Breakfast]

Yes, that last bit is very important and I’m pleased for him. I was just trying to get across, in a general way, that there is no guarantee that property prices will always go up. A sustained property price fall, however unlikely given performance in the past 30 odd years, could harm or even wipe out any inheritance.

Good on him though, it’s probably the right thing to do at this stage of his life when seeing your kids happy is top priority!

Everyone is different but I have no interest in mortgaging my kids’ inheritance.

 

[HalfaSeatOn]

£40,500 at 4% compound interest = £59k after 10 years and he also has a 10K option to use if required at the rate when its taken out if necassary . These are personal figures for my friend but. He had the option of 2 years no money and still paying a mortgage. One other important factor he has just mentioned. sorry, he just mentioned this he has a small mortgage already which has to be paid off (10K)
After the 2 years he qualifies for pension from the gov.
he can also keep the interest under control as he can pay up to 12% of the 40k off per year keeping his interest down. When he gets gov pension he will probably do this.
His small property is worth 190k it was purchased for 140k 5 years ago.So There is no reason to think the property value wont go up in value a lot more than the interest on the loan and if it doesnt it doesnt.
Im only passing on the facts he has given me and realise that its each to their own, so to speak.

Thanks. That’s helpful to see a real example. As a rule of thumb, I’d read the loan cost doubles every 15 years. So a £40k loan would equate to costing £80k after 15 years. Your example is proportionately less which is encouraging.

 

[phoenix]

Thanks. That’s helpful to see a real example. As a rule of thumb, I’d read the loan cost doubles every 15 years. So a £40k loan would equate to costing £80k after 15 years. Your example is proportionately less which is encouraging.

£40,500 Is actually £72,999 after 15 years trust me i've seen the figure.

Which is a lot less than £80k.

I hope this helps

 

[HalfaSeatOn]

£40,500 Is actually £72,999 after 15 years trust me i've seen the figure.

Which is a lot less than £80k.

I hope this helps

It really does. Do you have figures beyond 15 years? A 30 year figure for example (to get a feel for a best case scenario ie a long life lol)

 

[CoolTed]

A relative of mine recently went for Equity Release. In theory it was a good idea for him - he has no close family members to whom he wants to leave money to and, sadly, is very ill and has a short life expectancy. He used some of the money to buy a new car and the remaining cash will pay for everything he needs and wants. All fine, but . . .

. . . he didn't fully digest the small print and the implications of some of the conditions. The major problem is a condition about re-mortgaging. It is possible, subject to meeting the company's criteria for lending, but the salesman brushed the problem off by just saying "we won't lend on a park home". But there are many other properties they won't lend on either, including sheltered, retirement, etc. homes. He's currently living in a two storey house, with no bathroom or toilet on the ground floor and will need to move soon as his mobility is deteriorating rapidly. But now he can't buy anything suitable for him, so will have to go into residential care much sooner than he would otherwise have done.

So my advice to anyone thinking of going for this is to go through every condition and test each one against all the many situations you may find yourself in the future. All the conditions initially seem reasonable, until you start asking the "what if" questions. Enlisting the help of your Executor is a good idea, not least because there are also implications for them with these mortgages.

 

[Live by the sea]

When my mum passed away, this is what the man she was married to did. He sold their home, had the cat put down and bought a static home on a site down in Cornwall. Sounds idyllic, right? The place was a shithole, it was over 55's, no dogs, only 1 cat per home allowed, no kids allowed. When he thankfully died, it took us over a year to sell the wretched place and even then, at a considerable reduction to what he paid for it in the first place.

What we Americans call a trailer park . Not known for going up in value . Far better off buying a small one bed flat in a decent residential location , than buying on a caravan park .

 

[Harry Wilson's tackle]

54

Christ. Retiring at 54? What a loafer. I couldn't live with myself.

 

[NooBHA]

My company although not Financial Advisers have a " Wealth Department " which makes shit loads of money if they manage to sell it to or recommend to clients.

The short answer therefore is that if " Third Party " Companies are making a lot of money from it then the ones who are paying for it is the customer / clients.

So on that proviso - Anyone taking up the option is losing out.

 

[Harry Wilson's tackle]

What we Americans call a trailer park . Not known for going up in value . Far better off buying a small one bed flat in a decent residential location , than buying on a caravan park .

Excellent advice, but too late. The man is dead