Question on loan against house

AlexLee

Hi,

My grandparents who are 93 took a loan out a few years ago at fixed 7% rate using as a guarantee their house.. of course every year the loan is bigger as it is accumulating interest and therefore costing them more and more..

At the same time they have some investment in bonds which is giving them hardly any annual interest (less than 2%)...

The cost of the loan+interest will soon be more or less equal to the investment in the bonds..

Form my perspective they are losing money but from theirs they like having the extra money from the bonds to spend every month and don't really care about the other loan eating into their house value as they think they wont ever need that money as they will die before the house gets taken over..(their words)

Isnt there a better solution that they can have some extra spending money every month using their house as collatoral? but not incurring such a big difference from 2% to 7%?

Thanks, Alex

dunstonh

My grandparents who are 93 took a loan out a few years ago at fixed 7% rate using as a guarantee their house.. of course every year the loan is bigger as it is accumulating interest and therefore costing them more and more..

Why is it costing them more and more? If it is equity release and the interest is accumulating then it shouldnt cost them anything personally as the debt is being rolled up.

Form my perspective they are losing money but from theirs they like having the extra money from the bonds to spend every month and don't really care about the other loan eating into their house value as they think they wont ever need that money as they will die before the house gets taken over..(their words)

Seems like common sense. They want their money to provide for their lifestyle.

Isnt there a better solution that they can have some extra spending money every month using their house as collatoral? but not incurring such a big difference from 2% to 7%?

Sounds like they have that already. At age 93, there really isnt anything else that would logically replace cash savings.

mania112

As above, unfortunately if the property will be part of their legacy to you and your family, it will have to suffer any debt repayment owed - not a lot can be done about that.

So long as they are happy with their lifestyle, you should be too.

AlexLee

Thanks for the answers, I was trying to get them more money to spend on their lifestyle by reducing the intererest rate on the guaranteed loan on their house..

The loan on the house is around £18k and the yearly interest is 7%, which adds on to the loan every year, so next year they will owe just over £19k+7%

However they have £20k invested in bonds that are only giving them 2%..only around £400 a year, which they spend on themselves

I would have thought it would be better to ...
a) sell bonds
b) pay off house loan
c) Take out another loan for let's say £4K with a far better interest rate
d) Let them spend the £4k this year
e) Do the same next year..ie take another loan for another 4K..

My logic is to try and give them 10 times more spending power but costing them far less..

Sorry not an expert but seems they could be getting a lot more for their savings..

Also, what are the best type of things to do in this situation, there must be good deals for pensioners in similar situations..Any recommendations?

Thanks

ViolaLass

Couldn't they just pay the loan off with the money they have left, sell the bonds and spend that money?

bigadaj

You need to see what scheme they are currently under, it must be some form of equity release.

There are limited options due to the age and lack of income so you can't utilize a normal Lao. As they don't have the income to pay it.

Equity release mortgage costs are higher because the lender is gp having to fund the repayments effectively as well as the repayment term of teh mortgage being unknown.

Equity release schemes had a bad reputation but are now more tightly regulated, however they are still expensive because if the tooled up interest and unknown term, but are fine if they allow people to live in their own home for longer whilst being able to spend some of their capital.