Equity Release

Paul_Herring

Duchess79 wrote: »

Is that correct? I thought such limits were on repaying the underlying capital borrowed, not the interest generated as a result of that borrowing...

I will check wording but not sure why you raise this? Is there a difference?

Yes. If you borrow/release (say) £10,000 @5%, that is £500 for the first year interest generated.

Normally you can pay off up to 10% of what was borrowed (here £1,000, in addition to the £500 interest generated) so you only pay interest on £9000 next year (should you wish to reduce the capital as well as pay off any interest.)

What you've posted suggests that you can only pay off 10% of the interest - £50 in this example. Which leaves the original £10,000 there, plus an additional £450, to generate more interest next year of £522.5 with no way to reduce that increasing sum over the years.

A massive difference, since the latter wouldn't allow you to simply keep the amount of debt the same by paying off all the interest accrued over the year.

Duchess79

Thank you Paul.

Wording reads "in any 12 month period starting on completion of the lifetime mortgage and thereafter on each anniversary of completion, you can repay up to 10% of the total amount(s) you have borrowed, which includes the cash lump sum, plus any additional borrowing you have received, for example drawdown. We do not include any interest accrued in this calculation."

So I think that's as you understood it should be and I explained it badly...

kidmugsy

I don't see a compelling reason why you shouldn't do it, except for an instinct that solving a short term problem might be better done by a short term tactic. How about taking a lodger and using the rent-a-room allowance?

I suspect, however, that much of the criticism of equity release comes from people who (i) are out of date, (ii) hope for a big inheritance (you are clearly lucky with your stepchildren), and (iii) suffer from sheer ignorance and irrationality.

In your shoes I'd check carefully what conditions might give the mortgage company the right to demand a repayment. How about a failure to maintain the house properly? How about failing to pay Council Tax? I think you've already covered a desire to move house once you've taken the mortgage. How about taking a lodger - would that be precluded by the mortgage?

One other thought: investing for income at the moment is very difficult because interest rates have been forced so low by central banks. Is there anything that gains from low interest rates? Yes - mortgages do! What interest rate would you be paying?

Duchess79

Indeed Kidmugsy....that was one of our considerations as the rate is fixed at just over 4% for duration. You are also right....the fine print does suggest some ways they can repossess but the risk of all is low (ie never occurred to us in 40 years of mortgaged ownership). However will revisit some of your suggestions. Thank you

Mnd

We will not rule out equity release in the future (I'm nearly 65, wife is 59) so we will if necessary use this.

However, we are in the position similar to yours, no plans to downsize or move, and we also don't have to consider inheritance.

Also you state, when you get your pensions you will be able to "make ends meet" There is a big difference between making ends meet and having a comfortable retirement.

Personally I don't see the point of having a quarter of a million pounds worth of bricks, and being worried about turning the heating on.

So if you examine all your options and go through the steps suggested by others, then as long as you are sure that you understand the pros and cons, then I think it is a worthwhile consideration

Bimbly

If you are happy, don't move.

Some years back, a couple moved in two doors down from me. I don't know their situation, but I suspected they had downsized. The woman wasn't happy from day one and sat in the car for hours on the first day rather than go out in. Her husband did some things to the house to make her happy, like add a conservatory, but it didn't help. She died after a couple of years. He went a year after that. It was so sad.

Downsizing can work for people if that's what they want to do (the retired couple who live in that house now are very happy). But if you're happy where you are and don't want to move, then don't.

By the time you've paid stamp duty and moving costs, it may not release that much cash anyway. Not to mention the stress involved.

Kidmugsy has it right up thread in my view. Equity release deals are better than they used to be and you are aware of the compound interest issues. If it can keep you going until pensions kick in, then seems sensible to look at. You can reassess when those pensions start and see if it's worth paying back the capital in some way at that point. Perhaps a retirement mortgage then? That way, you should still have sufficient capital for a house move if you need to, for example, move to a more manageable property for health etc.

My personal plan is to keep equity release up my sleeve in case of care needs late in life. I'm hoping I won't need to access the equity in my house for any other reason before that, but I am aware it is an option.

AnotherJoe

A few basic questions;

What sort of jobs do/did you have that you arent getting your pension until you will be presumably 70? That seems very late?

As you are late 60's you should be getting state pension now. Are you?

If so, then you have two state pensions, two part time job incomes, no mortgage yet are struggling ! What are you spending your money on if that's not enough?


Could you take your "aged 70 pension" early? eg "now"? That might be cheaper in the long term than rolling up interest on an ER mortgage.
OTOH it seems a shame to have that equity sat there doing nothing but if you end up blowing a lot of it that may restrict your choices when you do want to downsize to a more manageable property later.

Duchess79

I'm not sure if I'm using all these forum tools correctly but hope so!


Thank you Bimbly...it's an important point. This has been our first 'home' in many years and we feel very settled here. I feel I could resettle but my husband feels otherwise ... and we tried once before and it didn't work as he couldn't settle. The least we owe ourselves is some happiness now after a lifetime of work. As I said the home is 365/24/7 ... it has to feel right. It's a real tussle to find the right answer though as don't want to jeopardise our security.



Another Joe... We can economise further....you are right. I'm not sure what people consider is reasonable to live on but I have gone through our budget extensively with the debt specialist and the real gap in income to expenditure is because of the credit card payments we have now (they are all currently on 0% deals). The initial loan is to pay these off as they become due that will bring our expenditure down. There are other things.... We still have two cars for instance. I'd love to go down to one and we will soon, but we are in a rural location with no transport whatsoever and both need to get to work. So yes, we could spend less, but basic costs are still getting higher as we all know. Then the other side of me says why should we live in penury. We don't want much, just to have a little cash for emergencies so why shouldn't we use the equity in the house! It's real dilemma. I appreciate all these viewpoints though.....we need to be challenged. I

kidmugsy

I agree with Bimbly about the house: it sounds as if you know it's perfection so it would be unwise to gamble on moving until you have to.

I also agree about "trading down": I'm sceptical that there are the savings to be made that people often assume.

One reservation though: as you get older you may find that living somewhere with no public transport becomes a pain.

Two positive thoughts: when you become a one car family consider getting an electric bike. For much of the year whizzing around at 15 m.p.h. may solve some of your problems for next-to-no cost in fuel. Secondly, do consider a lodger: two of our friends do it. One does it principally for the money but finds the company a great boon. One does it principally for the company and finds the money welcome too - she has many grandchildren to spoil.