Mum has big equity loan on house, alarm bells, help!

avonstour

Sorry new here, bear with me..pointers appreciated
My mum told me today that just over 10 years ago my dad and her took out a £40K equity loan against their mortgage free house, via Northern Rock. She didn't really want to do it but dad wanted a new car and to go on some long holidays to Oz and Canada to see his brothers and sisters, basically before they got too old, so she went along with it . Dad has since died and mum is getting on a bit and very worried by it all wishing she'd never agreed. Mum just told me the loan statement last month was now £90K, eeek! She said about 7% interest. I never knew, can this by right? I've yet to see the paperwork but will asap. I think they were persuaded at the time that their house value would go up to more than compensate for this, it hasn't. I think they were misled or very naive. I think her house is probably only worth about £270K, and now with £90K against it. She wants to sell house to get rid of it, but would be hard pressed to get anything else where she lives with the balance left.

Assuming worse case, what can be done? Can you transfer such loans onto cheaper interest rates? Were they sold something dodgy by Northern Rock? Or just stupid and stuck with it? I haven't got much but anything I can pay or do to help I will of course. Any advice, where to look, similar previous experience etc very much appreciated.
Cheers
L

forgotmyname

£40k over 25 years? £280 a month? total payable about £85,000?

Thats at 7%

A cheaper finance deal maybe possible but does she have the income to pay it off?

Muscle750

Am I right in assuming that no repayments have been made with 10 years passed still owing 90k on a 40k loan seems steep. If no repayment has been made how did she think the money would be paid back. The only way I can see this been paid is when the house is sold she can always rent

SnowTiger

Muscle750 wrote: »

Am I right in assuming that no repayments have been made with 10 years passed still owing 90k on a 40k loan seems steep. If no repayment has been made how did she think the money would be paid back. The only way I can see this been paid is when the house is sold she can always rent

Sounds like this or something similar to it: http://www.which.co.uk/money/retirement/guides/equity-release-explained/equity-release-lifetime-mortgages/.

patanne

Basically she will be fine, just don't expect any inheritance. Unfortunately, your father thought that his new car and holiday were more important than his wife's peace of mind. Unless you can afford to pay off this "loan" then your best option is to tell your mum not to worry they are not going to take the house.

Maybe this would be a good time to talk about a power of attorney to help her stay where she is or to deal with any issues that may present themselves.

iolanthe07

My parents in law took out something similar. My father in law died last year, mother in law now in a home has just sold her house for £193,500. After fees she received less than £9,000, the rest went to the bank - all for a conservatory costing £10,000 in 1998 and a measly annuity paying less than £200 a month!

You really need to be careful before you take out any of these home reversal mortgages, though I believe they are better regulated now..

avonstour

Thanks for the messages, appreciate it, will also seek IFA I guess to see what can be done to minimise the impact. First step though is I'll get hold of the paperwork and see what it actually does entail (expecting the worse & she might have misread something)

shortcrust

My mum did the same thing a few years back but seems to be in denial about it these days. My guess is she owes around £110k on a £180k house, also going up 7% a year. She constantly talks about how she's going to move to the country in a few years. In reality she's stuck where she is for good with no nearby shops or services, in a house that she already finds difficult to get around in.

cavework

First thing I would do is check that the agreement states that the amount owed will never exceed the value of the property at point of sale.
My parents took out a loan for approx. 40k in the 90s at an interest rate of 6% .. by 2014 when the house was sold repayment was 110k.
My Dad died at 90 and Mum is 90 this year (but now lives with us)..
Due to their age there was no penalty for early repayment .
This is something else you need to check
The company they used explained to me at the time how the loan worked and how it would affect me and any inheritance in the future so I have no complaints and parents enjoyed their retirement years
At one time they even agreed that we could pay the interest on the loan monthly to maintain the level of debt accrued after my Dad died..
this was £600 per month for the interest only on the debt.

cavework

shortcrust wrote: »

My mum did the same thing a few years back but seems to be in denial about it these days. My guess is she owes around £110k on a £180k house, also going up 7% a year. She constantly talks about how she's going to move to the country in a few years. In reality she's stuck where she is for good with no nearby shops or services, in a house that she already finds difficult to get around in.

Check the agreement , my parents could move the loan to another property if they wanted or needed to downsize or buy a warden controlled/ retirement flat .
ie..
they could use the full value of the house when sold to move somewhere smaller and the loan was transferred from the old property to the new.
Hope this helps

shortcrust

cavework wrote: »

Check the agreement , my parents could move the loan to another property if they wanted or needed to downsize or buy a warden controlled/ retirement flat .
ie..
they could use the full value of the house when sold to move somewhere smaller and the loan was transferred from the old property to the new.
Hope this helps

Thanks, that's really interesting to know for the future. She won't talk about it now, but it's good to know there are options when the time comes.