Equity release

76chick

My parents took out equity release on their home 13 years ago. the loan was for £33,000. the last statement said that it is now over £80,000. Is there anyway of capping it before it gets out of control or will my parents have to move home and pay it off? I can't believe these companies are allowed to get way with such awful terms and conditions.

[Deleted User]

They could repay it. Otherwise it will continue to increase, but only to the limits specified in the contract. It should never exceed the value of the property, so your parents will be able to stay in their home.

Check the contact to understand the full situation. The terms won't be as awful as you imagine. It's simply that a long term loan, with no repayments, will escalate faster than you think.

iolanthe07

It should never exceed the value of the property,

This may be true, but in the case of my parents-in-law the equity release they received of £40,000 in the late nineties ended up costing them 95% of the value of a £225,000 house in 2014, so do be careful. It may be better reguated these days.

dogshome

Not sure if this still applies, but onerous T&C

Friend of mines elderly father did an ER and of course the size of the loan grew, however when he died the loan conditions demanded instant re-payment, but of course the equity to repay the loan was tied up in the house which had to go through probate and then be sold, all of which takes time

During this period the interest rate rose hugely and was quickly eating away at the value of his fathers few other assets

Keep_pedalling

76chick wrote: »

My parents took out equity release on their home 13 years ago. the loan was for £33,000. the last statement said that it is now over £80,000. Is there anyway of capping it before it gets out of control or will my parents have to move home and pay it off? I can't believe these companies are allowed to get way with such awful terms and conditions.

As this is an older ER scheme it is unlikely that there is an option to pay it off early. Your parents have the right to stay in the home until it needs to be sold in the case of death or the need to move into care, by which time the compound interest will have built up even higher.

It may seem unfair, but your parents have had the use of the loan and have paid neither interest or capital back, and the only people it really effects are the people who would have inherited the house, so the loan may have been good for them, but it sure is bad news for you.

You do need to check the terms and conditions of the scheme to see if there are any get out clauses.

Silvertabby

If the loan was subject to a fixed interest rate of somewhere between 7.5% and 8%, then £80K sounds about right. That's the wonder of compound interest, I'm afraid.

How much has the value of your parent's home gone up in the same period?