Equity release info needed

daveofjoy

My Mum has 3 years left on her mortgage. She currently is in a job she really doesn't like and so she wants to release equity in the house to pay it off so she can retire. I understand that ER is not a very efficient way of generating cash and I've suggested she might consider alternatives like downsizing but she is quite reluctant to do this as she's very attached to her house. I want to make sure she is armed with all the info and so I'd really appreciate any advice on what to look out for, what are the pitfalls etc. Thanks!

G_M

Please clarify:

daveofjoy wrote: »

......she wants to release equity in the house to pay it off so she can retire.

Pay what off?

1) She wants to pay off the mortgage 3 years early? using what cash? How would that help with her job situation?

2) Or she wants to raise cash from the equity in the property, retire, and live off the cash?

If 2) above, then
* how old is she?
* what other financial resources does she have?
* is this
a) a short term matter (eg she will be receiving a pension in a couple of years so just needs enough cash till then) or
b) long term (she wants to live off this equity for the rest of her life?

How much equity is in the property? Market value? Outstanding mortgage?

This is potentially a major financial decision, and without knowing the full financial circumstances any advice would be .............

daveofjoy

It's my understanding that she wants to raise money from equity release and then use that money to pay off the remainder of the mortgage. She's 62 and doesn't have any other resources. The house is worth approx 145k and there is 30k left to pay. She says that if she can pay off the mortgage she can significantly reduce her working hours as she will no longer be liable for her mortgage repayments.

xylophone

Has your mother obtained a new state pension statement?https://www.gov.uk/check-state-pension

Does she have an occupational/private pension?

If there is some pension provision, is there a prospect of a lump sum available now?

If there is some pension provision available now, what is the prospect of taking it now in combination with a part time job elsewhere?

hazyjo

Has she fixed her mortgage on a deal? I'm looking at a similar figure and a £30k mortgage should only cost up to £200 or so a month. If she's paying double that or more (like my friend who won't listen to reason and reckons she pays around £600pm) then she might be able to fix it to free up that £200pm which would mean she could think about retiring or working part time.

greyfox

If you put her details into an equity release calculator (such as the one here http://www.equity-release-centre.co.uk/320--equity-release-calculator.htm ) I think you'll find it's not a realistic idea. Although she's old enough to go for equity release (in theory) she's far too young in practice & the value of her property is pretty low.

daveofjoy

@xylophone, no idea about pension, I will look into it
@hazyjo the repayments are 7-800 per month, as there is 30k (ish) to pay over 3 years, not sure how this could be any lower?
@greyfox, why is this a bad idea? if ER raises enough money to pay off her mortgage?

hazyjo

daveofjoy wrote: »

@xylophone, no idea about pension, I will look into it
@hazyjo the repayments are 7-800 per month, as there is 30k (ish) to pay over 3 years, not sure how this could be any lower?
@greyfox, why is this a bad idea? if ER raises enough money to pay off her mortgage?

Ah yes, it's because of the 3 years - was thinking about it being on the term it started at forgetting she had so little left. Oh well... forget that one!

greyfox

Might be worth reading Martin's take on Equity Release. He wrote it a few years ago but nothing's changed since. http://www.moneysavingexpert.com/news/protect/2010/06/should-you-equity-release
Not something to rush into. For example, if your mother wanted to move at some point in the future she might find that she wouldn't be able to afford to as the interest on the ER would have rolled-up & there wouldn't be enough left to buy anything else.

Has she asked her current mortgage provider about extending her term, which would reduce her payments? I know they used to limit terms to when the borrower was 65, but that's changed.

waningsleep

For your mothers sake think very carefully with regard to Equity Release.30000 at 5% compound interest would become about 60000 due in 13years and double again in the next 13years according to MSE.Be very aware before she commits.

G_M

If she can reduce her mortgaage repayments rather than ue the expensive and restrictive equity release process, she will be far better off.

Explore that option by

a) talking to the mortgage lender
* switch to interest only?
* extend the term beyond 3 years?
* move to a cheaper mortgage product?

b) talking to a mortgage adviser
* switch to another lender? (smaller building societies are much more flexible about age limits)

Any friends or family who can lend her money? Even a £10K loan would reduce her monthly repayments a lot. A 2nd Charge could be placed on the property by the friend so they were guaranteed repayment if she sold, or on death. This would be similar to, but far cheaper/better than, equity release.