Equity Release-Pros And Cons?

[hammerman]

Hi, My folks, who are in their mid 70's, want to release approx £25,000 from the house they own. It's market value is £320,000 (approx).

When they eventually die, the house is to be sold (as per their will) and the profits split between me and my sister (50/50)

Has anyone done this and are there and pros and cons they should be aware of?
Thanks in advance

[Denton]

DON’T do it,speaking from bitter experience.!!.

[Denton]

Released £11k,8 years later owed £45k, I repeat DON’T do it.!!

[Arrods]

I was advised once that, rather than equity release, if the offspring can afford it, and there are no other options, it might be better for them to loan the money to the parents.

[bednobs]

which is ok until parents need to go into care and sell the house

[Arrods]

Hi bednobs. Could you explain what the problem is? I don't understand. Thanks.

[bednobs]

if the parents have to go in a care home and they own a house, the house will be sold to pay for the care home, meaning there will be no money left to repay the loan

[Flonska]

This link provides some information:-

https://www.moneyadviceservice.org.uk/en/articles/equity-release

I suggest that your parents seek professional advice as to whether or not they should embark upon this and which method they should is appropriate for them .

[Arrods]

Bednobs. I was thinking they would be able to set up a formal loan arrangement with a legal charge on the house. Provided it was not seen as a way of circumventing care home costs, wouldn't the loan have to be repaid out of the house sale and anything left go towards the care home costs?

[Hymie]

Well it’s their property and they are free to do as they please with it.

Having spent a large part of their income during their life on buying the house, why not realise some of that value, and spend the money on enjoying themselves in their later years?

On the downside, equity release firms typically charge an interest rate of around 5% per annum (which is quite high, given that it is impossible to default on the loan).

If you consider that both your parents will live for another 15 years – then their equity loan will have doubled over that period from £25k to £50k (based on a 5% PA interest rate). So if house prices don’t rise over the next 15 years (very unlikely), the remaining equity left to share between your sister and you would be circa £270k (I have not included any fees that might be applicable in setting up the equity release).

If I was your parents, I’d be tempted to release £50k (£25k won’t buy many luxuries these days) – but I also might prefer to downsize my property – buying something costing around £250k, leaving myself around £60k to spend after moving costs; thereby continuing to own 100% of the value of my home.

[Denton]

Think you need to look again at what you have wrote,hymie. It is not Equity Release now,it is a Lifetime Mortgage. I know what I owed after 8 years so what would it have been after 15 years?

[Hymie]

For a loan of £11k to turn in to £45k in 8 years represents an interest rate of around 20%.

After 15 years your £11k loan would be around £170k – you should never have signed up to such an extortionate interest rate.

[atalanta]

Don't do it if you can possibly make other arrangements. My aunt did it, and both she and her heirs lost a great deal of money.

[Barmaid]

Yes Arrods, if the parents borrow the money off the child and the loan is secured on the property, it will represent the first legal charge so if it is sold, the charge is repaid.

[barney4444]

Am I right in thinking that if a property is worth say £200.000 and the home owner needs to go into a care home but there is a lifetime mortgage against the home of say total owing £100.000,then that is first repaid from the sale of the house, leaving only the balance left to go towards paying care fees, until only £23,000 ( higher in Wales I think ) when the local authority will then pay care fees.
Thanks in advance..

[ubasses]

Yes, that is correct, however if they still have any of the loan monies in their accounts that will also be be included in their assets

[barney4444]

Got it. thank you, obviously not something to rush into but equity release could be a sensible option in certain circumstances I think..