Equity release.

barbedhook

We are thinking of taking an equity Release loan on our property I have made a few enquires and was thinking of applying for a RIO mortgage. our house is valued at £115k and we are looking to release £40k we are both aged 66 after looking at the criteria of the affordability we would be ok as a couple but if I were to pass on my wife’s income would probably not be enough to qualify. As a couple our income is £33k made up of state pensions my workplace pension an industrial injuries pension and a small part time job. If my wife was left on her own her income would be £9100 state pension and £3600 from my workplace pension so I have looked at a different policy which lets you have the £40k and you can make a payment every year of 10% which would keep the total amount owed down. Am I right in thinking this is same as a Rio mortgage or am I missing something. I have spoken to a registered expert who gave me a figure for a loan at 3.85% fixed for the life of the loan. By the way the money is to gift as a deposit for my son to get on the property ladder I would rather give with a warm hand than a cold one. Do you think that if I paid the maximum payment I could pay every year it would stop the loan spiralling.

MWT

Are you going the RIO route with the desire to preserve the inheritance value of your estate?

Otherwise a Lifetime Mortgage product which does not have any affordability criteria might be a better approach.

It sounds like the 2nd product your advisor mentioned is a Lifetime Mortgage and no, it isn't the same as a RIO as while many of them offer the option to make a payment each year to reduce the accumulated interest there is no obligation to make any payment at all.

Ultimately it is all about your desire to preserve value in your estate for inheritance, or not as you choose...

MWT

You also need to consider the possible impact on means tested benefits, but you do not mention being in receipt of any of those.

There can also be issues around 'deprivation of assets' if at the time you take the equity release you could reasonably foresee that either or both of you would need local authority funding for care services in the future.

Obviously time is a factor there as well as current health, so there is no simple answer, but is is something else to understand and ask your advisor to comment on...

barbedhook

No health issues at the moment and would like to preserve as much value in our estate as possible. If I could pay 10% off after the first year on the £40k would it be roughly £1500 in interest and £2500 off the loan amount. The interest rate is 3.85% 

MWT

Obviously you will need to check the details of the specific plan, but options like that will often refer to being able to make ad-hoc repayments of 10% of the original amount borrowed each year with no penalties (the no penalties bit is important).

I wouldn't think of to as being split between interest and capital as this is a roll-up product so just think of it as reducing the total amount left to begin the following year with, but yes if you do make that payment each year you'd be offsetting the interest and reducing the balance.

MWT

Are you talking to an independent advisor who is able to access the whole market, or is this an advisor linked to a specific company or range of products?

barbedhook

It’s a whole of market quote from an equity Release company 

MWT

A few 'features' to look for would include:

10% Partial Repayment - you've got that from what you've said

Fixed Early Repayment Charges - so you know what the charges will be if you want to pay it all off or a larger amount than the 10% allowed. This will typically taper over the first 10 years from say 10% to 1% then remain at 1% for a further period before reducing to 0.

Downsizing Repayment Charge Exemption - This might offer to waive the early repayment charges if you decide to downsize and the new property doesn't meet their lending criteria. Typically this cuts in after say 5 years...

Also look for an exemption period following the death or long-term care of one of the lives covered which allows the balance of the loan to be paid off without penalty, typically something like 3 years.

Check who is paying for the various fees for advice, legal costs, valuation, application fees etc. as if it isn't you paying upfront it is being added to your loan total, or potentially affecting the interest rate so ask in each case so you understand the impact of some of the 'free' offers that may come with your product.

In particular understand who is paying for the advice you are receiving, if it isn't you than understand who it is as the advice is not genuinely 'independent' in that case...

barbedhook

I Will  have to pay £995 plus solicitors fees of approximately £600 and the mortgage company also pays them £1499. Thank you for your input MWT it has all the features you mention don’t know if you can post names of companies I am using.

MWT

As a customer you are free to post company names here, always good to mention places giving good service.

barbedhook

It’s a flexible navy lifetime  mortgage from legal & general the broker is equity Release supermarket