Equity release vs getting a mortgage on parents house

Seasiderunner

Hi all,
I have tried to look through the boards to gain a greater understanding of equity release agreements and other alternative solutions but think I need more help.

My parent owes £50k on their mortgage, which currently is an interest only mortgage, shortly the balance is due for payment but they do not have the funds and cannot remortgage. They are considering an equity release to pay off the mortgage but effectively in 15 years the company would own the house as there would be no equity left once sold due to the interest.

So other options are :
Sell and possibly buy something cheaper but this would be difficult in the area.
Sell and rent but the money would only last 10-13years.
My partner and I (possibly with other sibling help) take a mortgage out on the 50k and my parent lives there rent free.
My partner and I remortgage our house and pay off my parents mortgage.

Any advice on the options would be really helpful. What do we need to be aware of if we take out a mortgage on parents house?

Or is an equity release the best option, pay off mortgage and parent lives rent free for life.

Thanks

xylophone

Are you/ your sibling in a position to lend your parent £50,000 against a charge on the house?

Are you and your sibling in a position to take out a repayment mortgage with your parent so that you are tenants- in -common on the house?

Seasiderunner

I haven't discussed this with my sibling yet, I wanted to understand the options first.

I don't have the money to lend my parent, but I could afford the mortgage either on their house or on my house. Ideally my sibling would be able to help too so as to reduce my monthly payments.

Would tenants in common allow my parent to live there whilst I stay in my house?

Your_Hero

Equity release is a very expensive solution should only be used as a very last resort and I suggest that you have many alternatives before that stage. It also impact on your potential inheritance too (the house) so it can be costly for you as well in the long run.

I think a better alternative would be to loan your parents the £50,000 to repay the mortgage. If you do not have the capital, then you would probably need to re-mortgage your own place to repay your parents' mortgage.

Another thing you may wish to consider is to speak to a solicitor to draft up an agreement with your parents so that the money is in the form of a "loan" (interest-free is up to you) or even a charge on the property so that in the unfortunate event of their deaths or having to go into long term care, your money can be repaid to you and not treated as part of their estate.

Thrugelmir

Seasiderunner wrote: »

Hi all,
I have tried to look through the boards to gain a greater understanding of equity release agreements and other alternative solutions but think I need more help.

My parent owes £50k on their mortgage, which currently is an interest only mortgage, shortly the balance is due for payment but they do not have the funds and cannot remortgage. They are considering an equity release to pay off the mortgage but effectively in 15 years the company would own the house as there would be no equity left once sold due to the interest.

So other options are :
Sell and possibly buy something cheaper but this would be difficult in the area.
Sell and rent but the money would only last 10-13years.
My partner and I (possibly with other sibling help) take a mortgage out on the 50k and my parent lives there rent free.
My partner and I remortgage our house and pay off my parents mortgage.

Any advice on the options would be really helpful. What do we need to be aware of if we take out a mortgage on parents house?

Or is an equity release the best option, pay off mortgage and parent lives rent free for life.

Thanks

Post your question on the Mortgages and Endowments board.

atush

I agree with the last two posts, the mtg board is best, and equity release should be the very last resort.

The best solution is to sell and have them buy a smaller place. If not possible to buy a house, they should buy a flat.

I would re-mtg your house for the 50K, and get a written agreement it is an interest free loan. You need this for protection, in case one of them goes into care.

Do you have an emergency cash fund? How much wiggle room do you have in income should rates rise? Or will your parents make payments on the loan?

To be honest, they should not have had an interest only mtg w/o a plan to repay- do either of them have a pension with a tax free lump sum coming up?

xylophone

Would tenants in common allow my parent to live there whilst I stay in my house?

Yes - what would happens is that you, your sibling and your parent would own a specific proportion of the property.

http://www.theguardian.com/money/2013/sep/11/how-tenants-in-commmon-work

As it would not be a PPR for anyone other than your parent, there could be CGT to pay on your/your sibling's proportion on sale.

atush

But at least you would be getting it, and it would not go to the equity release firm.

Plus if you and your sibling have a spouse, they could own as well so you'd have 2x cgt exemption each, 4x overall

Seasiderunner

They do not have a pension, only the state pension.

I have £5k emergency money for my house. I currently over pay my mortgage slightly so instead would use this money to pay off the increased mortgage of £50k. Therefore should be ok but obviously would mean things were abit tighter if rates increased.

I have looked in the area and they would still require a mortgage, with not many places coming up for sale. They have had health problems so ideally want to be close to friends and town.

My parent could not afford to repay the loan, this is another reason they are looking at equity release.

In terms of building insurance etc would my name need to be on that because of owning a portion?
Thanks for all your help

Mojisola

Seasiderunner wrote: »

My parent could not afford to repay the loan, this is another reason they are looking at equity release.

If you remortgage your house and loan them the money, arrange it so that the loan is paid back when the house is sold (to protect your money in case they go into residential care) or on the second death.

They don't have to pay you anything in the meantime.

You can arrange to have some interest added to the lump sum upon repayment if you want.

margaretclare

It could be a solution. We did this in 2003 just to pay off a £45K mortgage. We saw no point in going on paying £260 or so a month until we were 83 just in time to die and leave it to someone else. We didn't desperately need the money, but it has been very useful for other things, home maintenance and improvements for instance - in 2005 the roof had to be completely replaced, and every year there's been something. It all keeps the value of the property up.

What has been good for us is that the BoE rate has been so low for so long and that means that the interest rate hasn't rolled up at anything like the rate we were warned - threatened! - that it might. We were able to get the rate pegged to the BoE rate. This may not always be possible. It depends completely on the terms and conditions. I believe there are schemes now where you can pay off the interest as it accrues - in fact we could do this.

Your parents need to do their homework thoroughly, find out all they can, not leave it to you. An online forum may be a start but you will get people's opinions and not necessarily what you need. An IFA who deals with such matters would be the best. Ours got us the best possible deal. Of course, it was all a bit of a gamble - could have been different if the BoE rate had soared. But in any case, we were guaranteed no negative equity and the right to live here as long as we wanted or needed. These 2 provisos are the absolute bottom line. Never mind leaving it to someone else. Mum & Dad need a roof over their heads for as long as they want one.