Equity release vs mortage when retired

Annisele

They also need to consider what happens if they want (or need) to move.

The FSA publishes a brief guide to equity release.

My personal view is that equity release can be very helpful to some people, but that it's an option of absolute last resort. If your parents-in-law can afford to buy the property using a mortgage (even if it's an interest only mortgage), I really can't see why they'd choose the far more inflexible route of equity release.

razorsharp

ViolaLass wrote: »

But not if they want to use it now?

Quite, and that is a fair commnet if that was the case, but they don't.

This is not me making an assumption. As previously explained they have a what they rate a good lifestyle and are both content with the level of disposable income they have.

ViolaLass

From what I understand, they DO want to use it now, to pay the interest (eventually) on the equity release (assuming they get it). If they don't, why are they considering it?

Is it that you don't feel they understand the full implications of equity release? I can see how them getting a mortgage is better for you but provided your FIL is of sound mind, has sought proper advice (which it seems he has) and is aware of the full potential costs of the scheme (which he may not be) then I don't see that it's necessarily such a bad option (for them).

Perhaps they could get an interest only loan and you could pay them the interest (meaning that the house would lose less equity and you would gain more when they die). That way your FIL still gets what he seems to want, which is a loan with no costs while he's alive.

razorsharp

ViolaLass wrote: »

From what I understand, they DO want to use it now, to pay the interest (eventually) on the equity release (assuming they get it). If they don't, why are they considering it?

Wouldn't that be ironic taking a loan to pay the interest on the same loan!

[FONT=&quot]As explained in the original post they have a disposable income that more than provides. Not in my judgement, but based on what they spend. When they turn 65 they both receive the full state pension which is about another £8k on top of what they have now.

Yes they are of sound mind, but in my view in this instance the IFA they have consulted has not provided an objective view point and literally returned a product based on what they have asked for, and I suspect his personal return.

My concern is not about our gain if they die, but the money they have available to them should they need it. If they can afford the mortgage they still have the option down the line to switch to equity release and have liquid cash.[/FONT]

fld14

After speaking to an elderly friend today I would steer clear of an equity release . She had an 18,000 loan a few years ago and has decided to move. They have control of her home and although her home is now worth around 250k she says she will only get about 80k:mad: She has it with RBS although they have stopped doing this now.

Let_Us_See

Oh dear, another possible scare story? I would say your elderly friend is confused over equity release. Borrowing £18,000 a 'few years ago' would never erode up to £170,000 equity and a lifetime mortgage provider never has control of the home, although with a Home Reversion scheme, the provider 'buys' part of the property. However, a controlling interest is unlikely on borrowing £18,000 on a £250,000 valuation.

Going back to the original post I believe a £30,000 interest only mortgage (especially if the occupational pension is transferable) should easily be affordable at a lower cost then a lifetime mortgage, which could be used at a later date if circumstances change.

Annisele

Unfortunately fld14's elderly friend might be right. It sounds as though the friend might have taken out a Shared Appreciation Mortgage (though I didn't know RBS did those; Barclays and HBOS certainly did).

With HBOS, if an £18k loan was taken, then the terms might have been: no interest is due on the £18k loan, but on sale of the home/death the bank will take 75% of the increase in the value of the house. I don't know what RBS' terms were, but if they were similar that would imply the friend's house has gone up in value by about £150k since the loan was taken out - which isn't that implausible.

This is going some way off the OP's original topic, but it does illustrate the need to be very careful when going down the equity release route.