Equity Release??

jack_tyler

Hello. I am thinking about doing an equity release, I've read a few things on line but to be honest I am more confused than what I was before. I think I get the gist of it.....in a nutshell you take an amount out of the equity in your home (I own mine outright so no mortgage) that amount is only paid back when either you die or go into long term care. But what I am trying to find out is, how is the interest charged? For example.....if I die or go into long term care, 10 yrs after taking the equity, is 10yrs worth of interest then charged on the amount that I took out? Any help or advice I would be very grateful, thank you 

silvercar

Correct. All the interest is rolled up and taken from the proceeds of the sale. There is a clause that the total interest charged can’t be greater than amount realised by the sale.

MWT

jack_tyler said:

But what I am trying to find out is, how is the interest charged? For example.....if I die or go into long term care, 10 yrs after taking the equity, is 10yrs worth of interest then charged on the amount that I took out? Any help or advice I would be very grateful, thank you 

There is more than one option with equity release...

There is 'rolled-up interest' as silvercar describes, where you pay nothing each month and the interest just accumulates until the property is sold upon one of the triggers (death or long-term care of the last life on the loan). You do get a statement, typically once a year to show you how the total owed is growing. You can usually opt to make repayments if you wish, typically up to 10% of the amount advanced, each year, and there will be an early repayment charge if you repay more than that. The charge will usually reduce over time.

Alternatively you can opt to make obligatory regular payments if you want to prevent the amount owed from building up, but given you can do the same on the 'rolled-up' version with out the obligation it doesn't really make sense for most people to give up the flexibility of choice in that regard.

You can also get approval for the maximum amount given your age/property value, but only draw down what you need when you need it. That reduces the interest you are paying but leaves you able to draw down further amounts at relatively short notice without any further approvals being required.

jack_tyler

MWT said:

jack_tyler said:

But what I am trying to find out is, how is the interest charged? For example.....if I die or go into long term care, 10 yrs after taking the equity, is 10yrs worth of interest then charged on the amount that I took out? Any help or advice I would be very grateful, thank you 

There is more than one option with equity release...

There is 'rolled-up interest' as silvercar describes, where you pay nothing each month and the interest just accumulates until the property is sold upon one of the triggers (death or long-term care of the last life on the loan). You do get a statement, typically once a year to show you how the total owed is growing. You can usually opt to make repayments if you wish, typically up to 10% of the amount advanced, each year, and there will be an early repayment charge if you repay more than that. The charge will usually reduce over time.

Alternatively you can opt to make obligatory regular payments if you want to prevent the amount owed from building up, but given you can do the same on the 'rolled-up' version with out the obligation it doesn't really make sense for most people to give up the flexibility of choice in that regard.

You can also get approval for the maximum amount given your age/property value, but only draw down what you need when you need it. That reduces the interest you are paying but leaves you able to draw down further amounts at relatively short notice without any further approvals being required.

Thank you for explaining that. I haven't had my house valued recently, but using Zoopla and researching other house sales in the area, I'd say my property would be around £140/170k. The amount I was thinking about taking in equity was £35k. What would be the percentage rate on this? Or does it vary for what ever reason? 

MWT

Your age is one of the key factors in determining how much you can get and what the interest rate would be.

There is also the matter of the suitability of your property as the lenders tend to be highly risk-averse as they know the odds very high that they will only get paid back after the property has sold, so there are few details that can rule out a property from consideration...

Adjacency to commercial premises or electricity pylons are a big deal for them, and of course having the property in a generally good state of repair and free from internal clutter is important.

You will have to take advice before you can use an equity release product and the fees for that range from zero to a few thousand pounds.

I'd suggest starting with one of the 'zero' options like StepChange Financial Solutions, they will explain everything to you and where possible, provide you with a detailed proposal, which you do not have to accept.

Also, depending upon your age and income, you may still have other options with traditional mortgages or Retirement Interest Only (RIO) products. Step Change can help with those as well, as can many other mortgage brokers.    

jack_tyler

MWT said:

You age is one of the key factors in determining how much you can get and what the interest rate would be.

There is also the matter of the suitability of your property as the lenders tend to be highly risk-averse as they know the odds very high that they will only get paid back after the property has sold, so there are few details that can rule out a property from consideration...

Adjacency to commercial premises or electricity pylons are a big deal for them, and of course having the property in a generally good state of repair and free from internal clutter is important.

You will have to take advice before you can use an equity release product and the fees for that range from zero to a few thousand pounds.

I'd suggest starting with one of the 'zero' options like StepChange Financial Solutions, they will explain everything to you and where possible, provide you with a details proposal, which you do not have to accept.

Also, depending upon your age and income, you may still have other options with traditional mortgages or Retirement Interest Only (RIO) products. Step Change can help with those as well, as can many other mortgage brokers.    

Thank you very much for that. I will contact Step Change and see what they can suggest. If it helps my age is 55 and my income is £900 (approx) after tax & NI 

MWT

Just a suggestion, but one of the things you will be asked is if you have considered down-sizing?

This should be a preferable option over equity release if it is practical.

Also if you have any potentially life-limiting conditions you should mention that when talking to your advisor as that can help achieve the amount you are aiming for which would otherwise be a little bit of a stretch if your property is at the lower end of your estimate given your relatively low age for this type of product.

stripling

jack_tyler said:

Hello. I am thinking about doing an equity release, I've read a few things on line but to be honest I am more confused than what I was before. I think I get the gist of it.....in a nutshell you take an amount out of the equity in your home (I own mine outright so no mortgage) that amount is only paid back when either you die or go into long term care. But what I am trying to find out is, how is the interest charged? For example.....if I die or go into long term care, 10 yrs after taking the equity, is 10yrs worth of interest then charged on the amount that I took out? Any help or advice I would be very grateful, thank you 

Equity release needs to be considered very, very carefully. The interest paid on the money borrowed is compound interest which means you are literally paying or accumulating interest on the interest from the minute the loan starts and the debt grows very rapidly.  There may be other, better possibilities including a small mortgage which will have lower interest rates and better conditions. My advice would be to definitely talk to Step Change and think carefully about your future plans or possibilities. 

If you do take equity release you can arrange it like a mortgage to pay off the interest and stop it compounding. If you slightly over pay every month you can also reduce the capital debt too.  Be aware of all the charges that go with equity release - from valuation costs to often quite high 'arrangement fees' - an independent advisor shouldn't charge unless you take a deal they have arranged so you need to know if they are getting a commission from the equity release provider or are you paying them?

You also need to consider if you may want to move in the future, leave money to relatives in your will, or whatever. How will you pay for house repairs? All these things need to be considered which is why it's probably better to not let the debt snowball and make selling or moving or borrowing again, impossible. 

MWT

stripling said:

Be aware of all the charges that go with equity release - from valuation costs to often quite high 'arrangement fees' - an independent advisor shouldn't charge unless you take a deal they have arranged so you need to know if they are getting a commission from the equity release provider or are you paying them?

On that point it is safe to assume that anyone providing regulated advice for equity release will eventually get a payment from the lender, that is how StepChange can offer the advice for 'free', but they do of course make that clear during the process. Others do indeed make large charges for their advice as well as receiving a payment from the lender. 

Valuation and legal costs can often be 'free' as well, but compare the interest rate to other deals that do not include free legal/valuation services for clarity. 

stripling said:

You also need to consider if you may want to move in the future, leave money to relatives in your will, or whatever. How will you pay for house repairs? All these things need to be considered which is why it's probably better to not let the debt snowball and make selling or moving or borrowing again, impossible. 

Agreed, it is very important to consider down-sizing or indeed any other property move first, and only consider equity release after ruling that out.

It is often possible to move an equity release product to another property though, if it is suitable, so it does not totally prevent a move in the future.

jimjames

jack_tyler said:

MWT said:

jack_tyler said:

But what I am trying to find out is, how is the interest charged? For example.....if I die or go into long term care, 10 yrs after taking the equity, is 10yrs worth of interest then charged on the amount that I took out? Any help or advice I would be very grateful, thank you 

There is more than one option with equity release...

There is 'rolled-up interest' as silvercar describes, where you pay nothing each month and the interest just accumulates until the property is sold upon one of the triggers (death or long-term care of the last life on the loan). You do get a statement, typically once a year to show you how the total owed is growing. You can usually opt to make repayments if you wish, typically up to 10% of the amount advanced, each year, and there will be an early repayment charge if you repay more than that. The charge will usually reduce over time.

Alternatively you can opt to make obligatory regular payments if you want to prevent the amount owed from building up, but given you can do the same on the 'rolled-up' version with out the obligation it doesn't really make sense for most people to give up the flexibility of choice in that regard.

You can also get approval for the maximum amount given your age/property value, but only draw down what you need when you need it. That reduces the interest you are paying but leaves you able to draw down further amounts at relatively short notice without any further approvals being required.

Thank you for explaining that. I haven't had my house valued recently, but using Zoopla and researching other house sales in the area, I'd say my property would be around £140/170k. The amount I was thinking about taking in equity was £35k. What would be the percentage rate on this? Or does it vary for what ever reason? 

£35k seems quite a low amount, but at age 55 with fees etc that could quickly grow and swallow a lot of the property value and cause issues if you need to move. What was the reason for the equity release? Are there other options that could be used as you're below retirement age? Downsize? Sell house and rent instead? 

jack_tyler

jimjames said:

jack_tyler said:

MWT said:

jack_tyler said:

But what I am trying to find out is, how is the interest charged? For example.....if I die or go into long term care, 10 yrs after taking the equity, is 10yrs worth of interest then charged on the amount that I took out? Any help or advice I would be very grateful, thank you 

There is more than one option with equity release...

There is 'rolled-up interest' as silvercar describes, where you pay nothing each month and the interest just accumulates until the property is sold upon one of the triggers (death or long-term care of the last life on the loan). You do get a statement, typically once a year to show you how the total owed is growing. You can usually opt to make repayments if you wish, typically up to 10% of the amount advanced, each year, and there will be an early repayment charge if you repay more than that. The charge will usually reduce over time.

Alternatively you can opt to make obligatory regular payments if you want to prevent the amount owed from building up, but given you can do the same on the 'rolled-up' version with out the obligation it doesn't really make sense for most people to give up the flexibility of choice in that regard.

You can also get approval for the maximum amount given your age/property value, but only draw down what you need when you need it. That reduces the interest you are paying but leaves you able to draw down further amounts at relatively short notice without any further approvals being required.

Thank you for explaining that. I haven't had my house valued recently, but using Zoopla and researching other house sales in the area, I'd say my property would be around £140/170k. The amount I was thinking about taking in equity was £35k. What would be the percentage rate on this? Or does it vary for what ever reason? 

£35k seems quite a low amount, but at age 55 with fees etc that could quickly grow and swallow a lot of the property value and cause issues if you need to move. What was the reason for the equity release? Are there other options that could be used as you're below retirement age? Downsize? Sell house and rent instead? 

The reason for the equity release was to clear some outstanding debts and leave me with some disposable cash. I am a single mother and a widow. I have looked at other options i.e. remortgage, loan etc but I don't earn enough to meet the monthly payments. Selling my house isn't really an option as this is the house that I shared with my late husband so I don't want to leave it, lots of memories etc and my son loves it here too.