Equity Release

tallyhoh

I have been dealing with my FIL affairs. I was surprised to find that he still owed £75,000 on his mortgage.

Tracing back through his paperwork I find that this is the result of a type of equity release (from a well known building society). He took an advance of £19,600 in 1989 and after repaying monthly until 1996 he converted it to equity release.

As a result in 10 years the amount repayable was £75,000 from an original loan of less than £20,000.:eek:

Be warned.

EdInvestor

Assuming this was not a "shared appreciation mortgage"*, that's the effect of compound interest and high rates for you. 1996 was (very) early days for equity release and the premium charged for specialised lending like this was probably quite steep, on top of rates which were still high. It looks as though he was paying an interest rate of 14% on the loan.

These days an ER loan might cost you 6-7% and the 20k would roll up to just under 40k over 10 years, much better.

You can reduce the effect of the rollup by not taking the full amount allowed at the start, but drawing it down in tranches as and when you need it.Interest only starts to be charged when you actually take out the money.

BTW, how much was the house worth, then and now?

*Only offered by Barclays Bank and Bank of Scotland (now HBoS).No longer sold.

tallyhoh

I can't find a valuation for the house from 1996, although I can find the offer letter etc.

I purchased my house in 1995 which is identical (same road even) for £50,000. So they were worth approx the same then, but FIL house became run down.

FIL house was sold for £110,000 in 2006, although it was initially valued at £90,000, war broke out between 2 determind buyers.

We visited the building society before the house was sold and the adviser told us that we would probably end up owing money after solicitor fees etc. if those 2 buyer had not come along and offered over the odds - well- I dont know what would have happened.:eek: