Lifetime Mortgage OR Retirement Interest Only Mortgage

dansakman

My mum is 91 owns her own home outright but is burning through savings at a rate of £3.5K a month paying for 24x7 live in care. Probably only has a year or two of life left due to health conditions. 

The savings pot is now down to 20K which means in 5 months she will no longer be able to afford care. I am of course looking to see what state/council benefits might help.

But ultmately I think equity release will be the only way to pay for care.

I'm getting really confused about different options.

The "Equity Release" route seems to turn up "Lifetime mortgage" as an option. No need to payback anything but any amount borrowed the interest compounds

But there is also the possibility of a "Retirement Interest Only" mortgage which seems is not considered to be "equity release" as such and is more like a regular mortgage. Interest is payable but you could also pay back capital. I think my mother could cover the interest payments out of pension income. 

I hoping with both that borrowing a bit at a time to cover care costs rather than a lump sum is possible so interest is kept down. 

Would both have implications for any means tested help toward care costs we might get?

Do either affect whether IHT Residence Nil Rate Band would still apply on remaining property on death. 

I'm sure there are other pros and cons

Can anyone please help me decide which of the two might be a better choice for my mother?

MWT

You will be able to get answers to all of those questions during the mandatory advice process that is involved in equity release products, but we can certainly help to get you started.

One question up-front though, does she have a registered power of attorney and are you named as her attorney?

Hopeful she does, as otherwise the process may be difficult given her age and state of health.

Individual lenders will vary, but in general she should have options for either product you are considering, as long as her property is suitable, but you may find a lifetime mortgage with rolled-up interest is most suitable for her and least onerous to obtain. 

A Retirement Interest Only (RIO) product carries the obligation to make the interest payments each month whereas a lifetime mortgage with rolled up interest can be arranged with zero obligation to make payments but with the option to pay if she wishes (within limits). So with this route she could still pay the annual interest if she wanted, but is not obliged to do so.

Lenders for these products are very cautious about the nature of the property, especially current state of repair, type of construction and and adjacency to commercial premises.

Both will have implications for means-tested benefits, but frankly so does owning her own home if she is the only one living there... if she is not the only one living there then that has implications for her ability to access these type s of products.

The IHT Residence Nil Rate Band is a tricky one, if she remains able to stay in her own home then the repayment of the loan would be triggered upon her demise and there would be no impact on the Residence Nil-Rate band, but if she was unable to remain at home and had to go into long term care then the repayment of the loan would be triggered at that point and unless there were other funds available to repay the loan, the property would need to be sold (usually 6-9 months is permitted for the sale). So in that case there would be no residence and hence no associated Nil-Rate Band...

I would suggest that you start by talking to StepChange as they offer 'free' advice for these products, which is not the case with all providers.

I'm sure you will have other questions so do just ask...  

born_again

Slightly off topic, given the savings level. can she now get support on the payments via local council?

MWT

born_again said:

Slightly off topic, given the savings level. can she now get support on the payments via local council?

Not off-topic at all I'd say, but the process should probably have started a few months ago when it was predictable that her savings were going to drop below the cut-off for support as the assessments can take a very long time...