Lean on house

Baldytyke88

My sister was telling me today that when her husband died, she ended up with a lean on their bungalow.

She didn't say what the amount was, a few thousand I guess. I was just wondering how the process of the interest rate of the lean is calculated.

Emmia

Do you mean a lien? 

Marcon

Baldytyke88 said:

My sister was telling me today that when her husband died, she ended up with a lean on their bungalow.

She didn't say what the amount was, a few thousand I guess. I was just wondering how the process of the interest rate of the lean is calculated.

A lien is used as collateral for a mortage loan, so if the borrower defaults on repayments the lender can foreclose on the property. There isn't an interest rate on the lien itself - the interest rate will be whatever your sister agreed with her lender. The lien will remain in place until the loan has been paid off.

Baldytyke88

Marcon said:

A lien is used as collateral for a mortage loan, so if the borrower defaults on repayments the lender can foreclose on the property. There isn't an interest rate on the lien itself - the interest rate will be whatever your sister agreed with her lender. The lien will remain in place until the loan has been paid off.

I will try and find out more, my sister seems happy to leave the debt untill she passes away. I am worried that the debt will increase over time. Her husband died around 10 years ago and she is now 72

Linton

Baldytyke88 said:

Marcon said:

A lien is used as collateral for a mortage loan, so if the borrower defaults on repayments the lender can foreclose on the property. There isn't an interest rate on the lien itself - the interest rate will be whatever your sister agreed with her lender. The lien will remain in place until the loan has been paid off.

I will try and find out more, my sister seems happy to leave the debt untill she passes away. I am worried that the debt will increase over time. Her husband died around 10 years ago and she is now 72

Why are you worried?  Surely whether your sister chooses to repay the underlying debt or let it increase indefinitely  (if the terms of the debt allow it)  is her decision.  Is she seeking advice?

Is it simply an equity release or mortgage agreement where the debt need not repaid until death or something else? If the latter it could be a bit surprising that the creditor would let it continue for an extended and unknown length of time.

Baldytyke88

Linton said:

Why are you worried?  Surely whether your sister chooses to repay the underlying debt or let it increase indefinitely  (if the terms of the debt allow it)  is her decision.  Is she seeking advice?

Is it simply an equity release or mortgage agreement where the debt need not repaid until death or something else? If the latter it could be a bit surprising that the creditor would let it continue for an extended and unknown length of time.

I am worried that the interest on the loan will mount up over a possible 20 years and be a very significant proportion of the value of the house.

Sea_Shell

Baldytyke88 said:

Linton said:

Why are you worried?  Surely whether your sister chooses to repay the underlying debt or let it increase indefinitely  (if the terms of the debt allow it)  is her decision.  Is she seeking advice?

Is it simply an equity release or mortgage agreement where the debt need not repaid until death or something else? If the latter it could be a bit surprising that the creditor would let it continue for an extended and unknown length of time.

I am worried that the interest on the loan will mount up over a possible 20 years and be a very significant proportion of the value of the house.

Does she have a will in place?  Who is currently her executor, and who is set to inherit? 

I can see how it would be helpful to know the details, so you (or executor) know what to expect down the track, but if she's happy with the current situation, then I can't see what she would gain by 'dealing with it' now.

For the time being, it seems that it remains in her best interests to leave things alone.    

However, If her circumstances change (want to move, or need to go into care) then the situation will have to be dealt with.

Baldytyke88

Sea_Shell said:

Does she have a will in place?  Who is currently her executor, and who is set to inherit? 

I can see how it would be helpful to know the details, so you (or executor) know what to expect down the track, but if she's happy with the current situation, then I can't see what she would gain by 'dealing with it' now.

For the time being, it seems that it remains in her best interests to leave things alone.    

However, If her circumstances change (want to move, or need to go into care) then the situation will have to be dealt with.

She has a son/daughter, depending on their circumstances, they could pay the debt now.

But that would be a risk if there were care costs.

Sea_Shell

Baldytyke88 said:

Sea_Shell said:

Does she have a will in place?  Who is currently her executor, and who is set to inherit? 

I can see how it would be helpful to know the details, so you (or executor) know what to expect down the track, but if she's happy with the current situation, then I can't see what she would gain by 'dealing with it' now.

For the time being, it seems that it remains in her best interests to leave things alone.    

However, If her circumstances change (want to move, or need to go into care) then the situation will have to be dealt with.

She has a son/daughter, depending on their circumstances, they could pay the debt now.

But that would be a risk if there were care costs.

Re care costs.

Pay off the debt, 100% of the home could have to be used to pay for care.  Risky, but will last longer.

Leave the debt outstanding, then only the remaining equity would be available for care costs.  Won't last as long.

Assuming the debt wasn't incurred to release equity to gift, and could be seen as any sort of deprivation of assets. 

Do nothing, whilst obtaining more information, would be my advice (which is worth what you've paid for it 😉)

Emmia

Baldytyke88 said:

Linton said:

Why are you worried?  Surely whether your sister chooses to repay the underlying debt or let it increase indefinitely  (if the terms of the debt allow it)  is her decision.  Is she seeking advice?

Is it simply an equity release or mortgage agreement where the debt need not repaid until death or something else? If the latter it could be a bit surprising that the creditor would let it continue for an extended and unknown length of time.

I am worried that the interest on the loan will mount up over a possible 20 years and be a very significant proportion of the value of the house.

Are you worried about losing a possible inheritance? Ultimately the money tied up in the value of the property is your sister's to spend / release as she chooses for her needs.

Inheritance for you or anyone else comes out of what's left.

DullGreyGuy

Baldytyke88 said:

Linton said:

Why are you worried?  Surely whether your sister chooses to repay the underlying debt or let it increase indefinitely  (if the terms of the debt allow it)  is her decision.  Is she seeking advice?

Is it simply an equity release or mortgage agreement where the debt need not repaid until death or something else? If the latter it could be a bit surprising that the creditor would let it continue for an extended and unknown length of time.

I am worried that the interest on the loan will mount up over a possible 20 years and be a very significant proportion of the value of the house.

so what? 

Its your sisters choice if she wants to prioritise having money now or leaving more inheritance. If she ends up needing care it'll also limit what she has to pay herself.