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Equity Release
Hi!
My husband and I recently found out that his Father has signed up to an equity release scheme. His father is 90 but his mother is only mid-60s and will likely stay in the house for another 10 years. He has told us that he has borrowed £90,000 against a house that is valued ~£750,000 at an interest rate of 2.3%. If I calculate this correctly, the loan will cost ~£22,000 but this seems much lower than I would expect given the awful things I’ve read about equity release. Can someone help me understand what I’m missing? I don’t believe it can be a good deal but maybe I’m too cynical?
My husband and I recently found out that his Father has signed up to an equity release scheme. His father is 90 but his mother is only mid-60s and will likely stay in the house for another 10 years. He has told us that he has borrowed £90,000 against a house that is valued ~£750,000 at an interest rate of 2.3%. If I calculate this correctly, the loan will cost ~£22,000 but this seems much lower than I would expect given the awful things I’ve read about equity release. Can someone help me understand what I’m missing? I don’t believe it can be a good deal but maybe I’m too cynical?
Thanks
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Comments
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Doesn't the interest and capital roll up ?
No capital is being paid back normally , the sum is taken from the estate on his death.
Is the house solely in his name ?Ex forum ambassador
Long term forum member0 -
The house is in both parents names.If the capital and interest role up, would it mean he would owe around £110,000 against the value of the house if they chose to move in 10 years? It’s so difficult to find a way to check the calculations.0
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Tron103 said:The house is in both parents names.If the capital and interest role up, would it mean he would owe around £110,000 against the value of the house if they chose to move in 10 years? It’s so difficult to find a way to check the calculations.
Yes - £112,979 will be outstanding after 10 years, plus any fees. Without repayments the calculation is quite straightforward: 90000 x 1.023^10
If repayments are involved, there are calculators online, or free apps.
2.3% doesn't seem that bad at a glance: the 10 year best buy mortgage rates are around 2.0%, and of course equity release has extra risks for the lender (e.g. having to guarantee the rate for life). It's the rolling up of capital and interest that gives equity release a bad rep, as the loan really starts to snowball. In this case, c.£142k would be owing after 20 years, which is starting to feel like a lot to pay for a 90k loan.0 -
This is so helpful - thank you.I absolutely understand why he wants to do it (he wants to give each of his kids financial help whilst he’s still alive) but worried he’s made an easy short term decision with long term impact. The above reassures me a lot - thank you!0
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Tron103 said:The house is in both parents names.If the capital and interest role up, would it mean he would owe around £110,000 against the value of the house if they chose to move in 10 years? It’s so difficult to find a way to check the calculations.0
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OP, it would save him money if he opted to down size. Sell their home, buy a smaller one for less money and use the released equity to give gifts. My partner's dad took out an equity release 15 years ago, and now wishes he hasn't. He's looking to sell but will lose a quarter of his house value to repay the equity release, so can't afford to buy another property in this area. They will work for some people, just not for him.0
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Since the debt cannot be repaid upon his death without the sale of the property, and the property is jointly owned, his wife must have signed this too. We are told she would like to stay in the house for another ten years, but, unless he lives to 100, that is not going to be possible. Worst case: if he dies within the next 12 months, she is going to have to move out.
It's presumed that there is not sufficient capital elsewhere in the estate to repay the loan without selling the house?
Really not enough info to go on, but, given the big age disparity here, it sounds like a poor decision may have been made.
No free lunch, and no free laptop1 -
You also have the risk that should either of them need need care, the cash raised and then given away could well be treated as deliberate deprivation of assets by the LA.0
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