Beware the equity release trap

gilpeta

In October this year mother in law passed away. She always kept her financial affairs very private. We now know that in June 1989 she re-mortgaged her home for £17,000 against the then market value of £59,000. The mortage provider are now 'Please' to advise the executor of the estate that at the date of her death she owes them a total of £87,000, = £70,000 interest on a £17,000 loan, nice work if you can get it. Oh by the way once we get the letters of administartion, early next year, they will give us a settlement figure. Please if you have family who are contemplating this route get some good advice because with todays house prices and interest rates you may will not have to worry about inheritance tax as there will be little or noting to inherit.

RabbitMad

So that's an annual interest rate of about 9%. Given what interest rates were in 1990 I hardly think its "Nice work if you can get it."

But I completely agree that with hindsight these arangements seem very poor value.

dunstonh

nice work if you can get it.

9% average is about right when you consider that for a period in the 90s mortgage rates were in double digits. You have also ignored inflation.

It seems a lot as a lump sum but remember that no payments were made to it so the interest was compounding the debt.

Please if you have family who are contemplating this route get some good advice because with todays house prices and interest rates you may will not have to worry about inheritance tax as there will be little or noting to inherit.

Modern equity release products are better than those in 1989. Its regulated now as well and there are required standards. However, the cost of borrowing wont be a lot different as that is subject to market conditions.

That said, your tone of post seems to be one of disappointment that your inheritance has been reduced because your mother-in-law got £17,000 (which would be about £50k now in todays money). It was her money and I am sure she found a good use for it as you don't do equity release unless you have to.

EdInvestor

I'd say 9% for that amount in 1989 was an astute deal, given that she had the use of the money for 20 years and was presumably quite young when she took it out.Rates are around 7% now after all.

And presumably she did leave you some inheritance?Not many houses around worth 87k these days.

PS Quite frankly with attitudes like this about, it's wise to keep your finances private.:mad:

toonfish

dunstonh wrote: »

That said, your tone of post seems to be one of disappointment that your inheritance has been reduced because your mother-in-law got £17,000 (which would be about £50k now in todays money). It was her money and I am sure she found a good use for it as you don't do equity release unless you have to.

nail firmly hit on the head - perhaps the original poster should have given her £17,000 18 years ago instead.

Dylanwing

As Inheritance tax kicks in at £250K (Or has it gone up?), if you pay this, you can hardly say that there is 'nothing to inherit'. It sounds a lot, but others have pointed out the reasons. Is it not better that your Mother enjoyed her money whilst still alive? Had she needed a nursing home, you would really have seen the inheritence vanish!