Equity Release??

housebuyer143

jack_tyler said:

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. 

What people are trying to say though, is that, that £35k can easily grow to swallow the majority of your property value if you plan to pay it back when you die so you are not likely to be able to leave anything to your son. If you want to move then I believe they expect repayment and you will not be able to afford anything else to move to. 
Definitely get advice before you press on with this. 

MWT

housebuyer143 said:

 If you want to move then I believe they expect repayment and you will not be able to afford anything else to move to. 
Definitely get advice before you press on with this. 

It would be rare to find an equity release product that was not portable these days, but the problem remains that it is harder to down-size once you have taken equity release as the total you need to borrow will have increased due to the interest rolling-up, and although the percentage that you can borrow increases as you get older it does not do so fast enough to cover the likely significant reduction in value of the new property vs the original one, so you can end up having to repay a portion of the existing borrowing.

Add in the restriction on what the lenders will consider to be a suitable property and it really doesn't make sense to consider equity release as first option, especially if down-sizing is actually a workable solution.

jack_tyler said:

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. 

I can fully understand how you feel about the home you are in and the memories you have, but if you really do need the money to clear debt and free up a little capital then you really should seriously consider down-sizing as the first option, not equity release.

You will have to take advice before using an equity release product anyway, and the advice you will get should also challenge you on that point as it is not in your best interest from a financial perspective to take on debt if you could free up the same or even more from a move to a smaller property. 

kingstreet

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.

This ^^^^^

missile

jack_tyler said:

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. 

After estate agent fees, removal costs stamp duty et al, I doubt you would release any money and could end up worse off?

MWT

missile said:

After estate agent fees, removal costs stamp duty et al, I doubt you would release any money and could end up worse off?

It very much depends on what you are moving from and to, but you can also use equity release as part of the purchase process for the new property, so in total you will certainly end up with cash in hand, any a much lower probability of needing to move again in the future which would otherwise have been hampered by the equity release.

missile

MWT said:

missile said:

After estate agent fees, removal costs stamp duty et al, I doubt you would release any money and could end up worse off?

It very much depends on what you are moving from and to, but you can also use equity release as part of the purchase process for the new property, so in total you will certainly end up with cash in hand, any a much lower probability of needing to move again in the future which would otherwise have been hampered by the equity release.

Obviously :-:smiley: , but IMHO many underestimate the costs and hassle associated with selling, moving, buying and refurnishing the new property. With a value of £140/170 she could easily spend £30+k to downsize. I do not think this is always true "so in total you will certainly end up with cash in hand" 

theoretica

jack_tyler said:

The reason for the equity release was to clear some outstanding debts and leave me with some disposable cash.

Usual advice is not to convert unsecured loans to secured loans, but to deal with debt by other means.  This seems an extreme case of that and very worth exploring other ways to manage the debts - have you sought advice from one of the debt charities?