Releasing Equity in home...worth it?
Discussion
Hi Guys,
In relation to releasing equity in a home I have understood the following;
- You can take a 100% mortgage and pay no rent or anything for life and when you die the bank claims the house.
OR
- You can release a percentage of equity in the house from a specialist company/bank product which they pay rent on and then when you die they claim the house.
Age generally above 55-60.
So my question is have i understood it right what are the Real pros vs cons?, as in some ways it sounds to good to be true. Am thinking about this for my in laws as a solution for them.
Cheers
Sabs
In relation to releasing equity in a home I have understood the following;
- You can take a 100% mortgage and pay no rent or anything for life and when you die the bank claims the house.
OR
- You can release a percentage of equity in the house from a specialist company/bank product which they pay rent on and then when you die they claim the house.
Age generally above 55-60.
So my question is have i understood it right what are the Real pros vs cons?, as in some ways it sounds to good to be true. Am thinking about this for my in laws as a solution for them.
Cheers
Sabs
Edited by boombastictiger on Friday 22 July 13:47
Well firstly what do they need the money for?
Secondly I this is your spouses possible inheritance which could be wiped out entirely.
Thirsty you could buy their house and then they rent off you at market rates for life (and you could give them cash in hand back - or buy them the weekly shopping/servicing their cars pay for petrol etc to get to the number they want to pay.
Secondly I this is your spouses possible inheritance which could be wiped out entirely.
Thirsty you could buy their house and then they rent off you at market rates for life (and you could give them cash in hand back - or buy them the weekly shopping/servicing their cars pay for petrol etc to get to the number they want to pay.
boombastictiger said:
Hi Guys,
In relation to releasing equity in a home I have understood the following;
- You can take a 100% mortgage and pay no rent or anything for life and when you die the bank claims the house.
Not sure you can get 100% mortgage in these circumstances, probably 60% at most. Worth checking that out.In relation to releasing equity in a home I have understood the following;
- You can take a 100% mortgage and pay no rent or anything for life and when you die the bank claims the house.
Edited by boombastictiger on Friday 22 July 13:47
S
Ozzie Osmond said:
Welshbeef said:
Thirdly you could buy their house and then they rent off you at market rates for life (and you could give them cash in hand back - or buy them the weekly shopping/servicing their cars pay for petrol etc to get to the number they want to pay.
^^^ ThisIt all sounds fine when everything is perfect but what happens if the person buying the house:
a) goes bankrupt,
b) gets divorced
c) dies
No one wants to consider the worst case scenarios but any of the above could be fairly disastrous for all involved.....
B
fat80b said:
If I were the one wanting to release the equity, I would be very wary of an arrangement like this and would want to see some careful lawyering taking place to make sure everyone is protected.
It all sounds fine when everything is perfect but what happens if the person buying the house:
a) goes bankrupt,
b) gets divorced
c) dies
Whilst those are fair points one needs to remember,It all sounds fine when everything is perfect but what happens if the person buying the house:
a) goes bankrupt,
b) gets divorced
c) dies
- The seller has received full cash value for the house already, and
- With security of tenure it doesn't matter who owns the house (after e.g. bankruptcy) - the seller is still a legal tenant.
We are in agreement that if you're going to do it, make sure you do it properly.
I think equity release is going to become an integral part of retirement planning now that pensions are free of IHT.
You can save through your working life into a SIPP without paying any tax then ring fence this money (taking the tax free cash if required) and draw down another tax free income from your home.
What is the point of paying full tax on pension withdrawals and leaving your kids an IHT bill on the house when you can draw a tax free income from the house and leave the kids and IHT free inheritance from your SIPP?
Obviously this need PROPER planing from a specialist adviser as there are other factor to consider (not least your IHT allowance). But for larger values there is a lot of merit.
You can save through your working life into a SIPP without paying any tax then ring fence this money (taking the tax free cash if required) and draw down another tax free income from your home.
What is the point of paying full tax on pension withdrawals and leaving your kids an IHT bill on the house when you can draw a tax free income from the house and leave the kids and IHT free inheritance from your SIPP?
Obviously this need PROPER planing from a specialist adviser as there are other factor to consider (not least your IHT allowance). But for larger values there is a lot of merit.
mike74 said:
Some of these firms have online equity release calculators.. the last time I tried one offering a similar scenario to your first example I gave my details as 58 years old, owning outright a house worth £125k, it came back with an offer of £27k!
I'm not sure of the point you are trying to make - you're not suggesting that were offering a cash payment of £25,000 in exchange for 100% of the value of your house when you die, are you?sidicks said:
I'm not sure of the point you are trying to make - you're not suggesting that were offering a cash payment of £25,000 in exchange for 100% of the value of your house when you die, are you?
It was a while ago so I can't remember the finer details and it was only a basic instant online calculator which will have no doubt been subject to all sorts of t&c's, but yes the basic premise of the offer was £27k for a house worth £125k if I was aged 58.mike74 said:
It was a while ago so I can't remember the finer details and it was only a basic instant online calculator which will have no doubt been subject to all sorts of t&c's, but yes the basic premise of the offer was £27k for a house worth £125k if I was aged 58.
I refuse to believe that, unless it was a mistake.Can you remember which firm it was with?
JulianPH said:
I've just done it with Aviva's calculator (same criteria - £125k value and age 58) and got £29k (difference perhaps down to postcode...?).
Quite staggering!
Maybe there's a misunderstanding here?Quite staggering!
The amount quoted is simply the maximum amount they will lend you, but then you repay that amount plus interest from the proceeds of the house sale at a future date. When you die Aviva simply do NOT own 100% of the house!!
Given that there is a no negative equity guarantee i.e. loan plus interest can never exceed the value of the house, and the timing of the eventual return of principal is highly uncertain, then naturally they will only loan a small proportion of the house.
sidicks said:
Maybe there's a misunderstanding here?
The amount quoted is simply the maximum amount they will lend you, but then you repay that amount plus interest from the proceeds of the house sale at a future date. When you die Aviva simply do NOT own 100% of the house!!
Given that there is a no negative equity guarantee i.e. loan plus interest can never exceed the value of the house, and the timing of the eventual return of principal is highly uncertain, then naturally they will only loan a small proportion of the house.
Yes, I think there is a misunderstanding here as in your previous post you said "I refuse to believe that" [the £27k figure] and you thought it was a mistake. I did some quick checking and posted my findings, yet wow you are explaining it to me!!! Also why tell me that they won't own 100% of the house when I have never suggested they would?!!! The amount quoted is simply the maximum amount they will lend you, but then you repay that amount plus interest from the proceeds of the house sale at a future date. When you die Aviva simply do NOT own 100% of the house!!
Given that there is a no negative equity guarantee i.e. loan plus interest can never exceed the value of the house, and the timing of the eventual return of principal is highly uncertain, then naturally they will only loan a small proportion of the house.
JulianPH said:
Yes, I think there is a misunderstanding here as in your previous post you said "I refuse to believe that" [the £27k figure] and you thought it was a mistake. I did some quick checking and posted my findings, yet wow you are explaining it to me!!! Also why tell me that they won't own 100% of the house when I have never suggested they would?!!!
It looks as though you didn't read my question to the OPC and their response:mike74 said:
sidicks said:
I'm not sure of the point you are trying to make - you're not suggesting that were offering a cash payment of £25,000 in exchange for 100% of the value of your house when you die, are you?
It was a while ago so I can't remember the finer details and it was only a basic instant online calculator which will have no doubt been subject to all sorts of t&c's, but yes the basic premise of the offer was £27k for a house worth £125k if I was aged 58.And you responded to his post seemingly supporting exactly what he'd just said. Particularly when you comment of 'quite staggering' again seems to be supporting what the OP has claimed. (Otherwise, quite why you think it is quite staggering that if you borrow £25k you have to pay back £25k plus interest is yet to be explained!).
Sidicks
sidicks said:
So the OP was clearly confused about what was on offer.
And you responded to his post seemingly supporting exactly what he'd just said. Particularly when you comment of 'quite staggering' again seems to be supporting what the OP has claimed. (Otherwise, quite why you think it is quite staggering that if you borrow £25k you have to pay back £25k plus interest is yet to be explained!).
Sidicks
I was responding to your post (not the OP's), supporting what you said. You said you didn't believe it and I looked and said it was staggering!And you responded to his post seemingly supporting exactly what he'd just said. Particularly when you comment of 'quite staggering' again seems to be supporting what the OP has claimed. (Otherwise, quite why you think it is quite staggering that if you borrow £25k you have to pay back £25k plus interest is yet to be explained!).
Sidicks
I don't think there is any issue with paying back the interest on the borrowing, just with paying back the compound interest - on the interest - on the borrowing.
The mechanics are simple, but I was shocked at the low level of equity release until I worked out you are paying interest on the capital and accumulated outstanding interest.
Anyway,
mate!JulianPH said:
I was responding to your post (not the OP's), supporting what you said. You said you didn't believe it and I looked and said it was staggering!
Ok, I was right not to believe it, as it was untrue!JulianPH said:
I don't think there is any issue with paying back the interest on the borrowing, just with paying back the compound interest - on the interest - on the borrowing.
That's how loans work!JulianPH said:
The mechanics are simple, but I was shocked at the low level of equity release until I worked out you are paying interest on the capital and accumulated outstanding interest.
Just like any loan?!Edited by sidicks on Sunday 24th July 18:25
sidicks said:
JulianPH said:
I was responding to your post (not the OP's), supporting what you said. You said you didn't believe it and I looked and said it was staggering!
Ok, I was right not to believe it, as it was untrue!JulianPH said:
I don't think there is any issue with paying back the interest on the borrowing, just with paying back the compound interest - on the interest - on the borrowing.
That's how loans work!JulianPH said:
The mechanics are simple, but I was shocked at the low level of equity release until I worked out you are paying interest on the capital and accumulated outstanding interest.
Just like any loan?!Edited by sidicks on Sunday 24th July 18:25
Until then, let's just agree to disagree...!
JulianPH said:
When you let me take over control of all of the equity in your home and eventually own most of it (including all future growth in it's value and interest on the outstanding interest) for less than a quarter of the current valuation, then we can agree.
Until then, let's just agree to disagree...!
I think you misunderstand how equity release works - it just an ordinary loan secured on the property, interest is charged in exactly the same way as for any other loan - on the amount outstanding at the end of the period, after allowing for any repayments made.Until then, let's just agree to disagree...!
The provider has no entitlement to any increase in the value of the house, only to the amount of the loan outstanding (which of course may be funded from part of the future house price appreciation). The product under discussion does not give the provider a share in the future value of the house.
Edited by sidicks on Sunday 24th July 19:57
Gassing Station | Finance | Top of Page | What's New | My Stuff