:confused: IS EQUITY RELEASE THE ONLY WAY TO GO?

goldie-bambino

Hi,
When my dad was alive he ran up a tax debt of £8 thousand forcing him to declare himself bankrupt. As my mum and dad were at risk of loosing the house to pay off the debt, they took a high interest joint loan (legal loan sharks) using the house collateral.
My Dad died four months ago leaving my mum with this loan which after 10 years of interest is now £20 thousand even though payments have been paid on time every month.
My mum is 60 next month and unable to work so she is left with no way of paying the £180 per month payments.
After seeing a IFA she was told that the only way to pay the loan off would be to consider PART EQUITY RELEASE (house is worth £100 thousand).
As she has no savings and not much income she has decided to follow the IFA's advice and when she's 60 intends to go ahead with the EQUITY RELEASE.
I am really worried that she may be making a wrong decision and will end up with nothing left or more debt.
Please advise me if this is the only way to go and if it is what is the best deal/company to go with.

Rafter

Don't have all the facts to advise you.

The loan must have been for a lot more than £8k to have a balance outstanding of £20k after 10 years.

They must have cleared other debts or supported income from this.

Equity release will probably mean giving up most of her house but at least payments on the loan would stop.

Before proceeding I strongly suggest both of you go and see citizens advice for a second opinion on what your Mum's options are.

It may well be that selling the house, downsizing, renting or something else may be a better option.

R.

goldie-bambino

Rafter wrote:

Don't have all the facts to advise you.

The loan must have been for a lot more than £8k to have a balance outstanding of £20k after 10 years.

They must have cleared other debts or supported income from this.

Equity release will probably mean giving up most of her house but at least payments on the loan would stop.

Before proceeding I strongly suggest both of you go and see citizens advice for a second opinion on what your Mum's options are.

It may well be that selling the house, downsizing, renting or something else may be a better option.

R.

Many thanks for your advice.
mum does not want to move home as i live nextdoor and she doesnt feel like she could start again somewhere else so soon after my dads death. I will certanly try citizens advice though.
thanks x

defender_of_the_weak

Assuming the 20K is the correct amount outstanding why does she not do her own form of equity release. To raise 20K she will have to give up a significant portion of the value, lets say 40% (which I think is low). Instead of this she raises a standard loan for £30,000 pays of the loan shark and sticks the rest on deposit. If you shop around and get a decent fixed rate loan (as she doesnt want to move) she could use the 10K to service the interest for approximately 7 years. In this time the value will hopefully have gone up and if she does want to do equity release she could consider again when she would get a better deal due to her age.

Even if the market rose by 30% over the next seven years the 40% equity share then becomes worth £52,000 for a £20,000 loan.

Please note: this is not financial advice only the perspective of a professional complainer and grumpy.

Equity release has its place in the market but like so many forms of loans against property is seen as a soft option because you never see the real cost

goldie-bambino

defender_of_the_weak wrote:

Assuming the 20K is the correct amount outstanding why does she not do her own form of equity release. To raise 20K she will have to give up a significant portion of the value, lets say 40% (which I think is low). Instead of this she raises a standard loan for £30,000 pays of the loan shark and sticks the rest on deposit. If you shop around and get a decent fixed rate loan (as she doesnt want to move) she could use the 10K to service the interest for approximately 7 years. In this time the value will hopefully have gone up and if she does want to do equity release she could consider again when she would get a better deal due to her age.

Even if the market rose by 30% over the next seven years the 40% equity share then becomes worth £52,000 for a £20,000 loan.

Please note: this is not financial advice only the perspective of a professional complainer and grumpy.

Equity release has its place in the market but like so many forms of loans against property is seen as a soft option because you never see the real cost

thanks, something to think about