Equity Release A good idea?

varisian

I'm a 60 year old home owner with some savings and a fully payed off mortgage. Is there a downside, other than the reduction in the kids' inheritance, to releasing say £50K from the equity of my £200k house?

It seems attractive on the face of it but I'm a bit concerned as to the real costs involved in doing so.

margaretclare

Hi

It may or may not be a good idea, depending on a lot of different factors.

We did it 3 years ago with the specific purpose of releasing enough of the equity to pay off an existing mortgage which would have lasted until we're 83. One of us had to be 68 before we could release 25% of the equity.

Your first stop should be the SHIP website - SHIP = safe home equity plans.
https://www.ship-ltd.org/

Best wishes

Margaret

tanith

It depends a lot on your circumstance , and it seems a lot of people go into these schemes and seem to be unaware that the interest rolls up year on year.. just so long as you are aware of this and go into it with lots of information.....

lisyloo

I'm a 60 year old home owner with some savings and a fully payed off mortgage. Is there a downside, other than the reduction in the kids' inheritance, to releasing say £50K from the equity of my £200k house?

It fairly expensive and you may not be allowed to borrow that much because you are relatively very young.
It works a bit like a mortgage in reverse except that instead of paying interest each month it simply gets added onto the bill.
The problem is that your interest is compounded.

Easiest shown with an example.
e.g. imagine you borrow 50K at 5%.
After one year you owe £50K + £2500 interest.
In the second year you are not paying interest on £50K but interest on £52.5K, so second year interest is £2625.
Now £125 might not sound like much but I can assure you that it's snowballs over 20 or 30 years.
This is called compound interest (apologies if I am stating the obvious).

The reason that I said you might not be able to borrow that much is that the company might calculate that (statictically) the total bill could exceed the value of the house by the time you die and obviously that isn't in their interest (as they will be at a loss).
So you might find you can't borrow £50K.

Also having £50K might stop you getting means tested benefits.

Have you considered moving to a £150K house?
This is overall much cheaper as there is no company taking a profit (apart from solicitors and removals but these are one-off costs).
Also a smaller house has lower utility, insurance, maintenance and council tax bills and can be easier to manage as you get older (although appreciate your only 60).

We looked at this for parents who were 74 at the time.
We found downsizing was better for them both in financial terms but also for meeting their general care needs.

EdInvestor

Just to add a couple of points - to reduce the effect of compounding, always look for the lowest interest rate possible, and consider drawing down the money in stages as you need it, rather than as a lump sum at the start.If you choose the drawdown option, interest is only charged after you get the money.

Also pay close attention to redemption penalties, as the equity release market is growing and changing rapidly.It's not impossible you may want to "remortgage' to a better deal later, especially if the value of your house rises and you want to access more equity.So penalty charges should be as low as possible.

lisyloo

consider drawing down the money in stages as you need it

This could also avoid you being prevented from getting means testing benefits.

My parents got pension credit with about £27K in the bank so you can have quite a bit and still get it.
Houseing benefit and council tax benefit kick in below £16K of savngs.