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
drainbrain said:
Sabs: The broad aim is to get money for older people using equity available in property they own.
It's a specialist area which is best advised on by a proper expert in this niche area of property related borrowing. Such expert advisers exist, but so too do many not-so-expert (though properly licensed) advisers.
To give you an outset idea of the most common methods of achieving the aim, here's a not bad but very simplified synopsis from wikipedia :
Lifetime mortgage: A loan secured on the borrower's home (a mortgage loan) is made. Compounded interest is added to the capital throughout the term of the loan, which is then repaid by selling the property when the borrower (or borrowing couple) dies or moves out (perhaps into a care home). The borrower retains legal title to the home whilst living in it, and also retains the responsibilities and costs of ownership.
Interest only: A mortgage is made, on which the capital is repaid on death. Interest payments are paid whilst the borrowers remain in the property.
Home reversion: The borrowers sell all or part of their home to a third party, normally a reversion company or individual. This means all or part of their home belongs to somebody else. In return, the borrowers receive a regular income or cash lump sum (or both) and they continue to live in their home for as long as they wish.
Shared appreciation mortgage: The lender loans the borrower a capital sum in return for a share of the future increase in the growth of the property value. The borrowers retain the right to live in the property until death. The older the client the smaller the share required by the lender. This type of arrangement is no longer available in the UK.
Home income plan: A lifetime mortgage where the capital is used to provide an income by purchasing an annuity often provided by the lender, which is often an insurance company.
UK Equity Release Schemes: Generally available to over 55 year homeowners with sufficient equity in their property, who can opt to release some of the capital from their homes via an equity release arrangement from specialists lenders.
IF you get said specialist the process is tedious. Early in it, if he's a good'un, relatives/potential beneficiaries of the borrowers' estate will be asked to participate in the process and will be given an understanding of the process and its implications. Then to determine which type (if any ) of product is suitable, a lengthy and detailed fact find of not only the borrowers but possibly also the interested parties as well will be undertaken.
Many "financial advisers" or mortgage brokers have the capability and licence to organise these products. But the one you need is one who SPECIALISES in them and in the tedious and painstaking process of analysis to determine which product of which type (if any at all) is best suited to the individual circumstances.
YOUR job, therefore, becomes locating that best adviser. NOT a well referenced IFA or mortgage broker. A well referenced specialist expert independent adviser of equity-release type products for older borrowers.
Thanks for this Deadbrain, very helpful and makes logical sense. It's a specialist area which is best advised on by a proper expert in this niche area of property related borrowing. Such expert advisers exist, but so too do many not-so-expert (though properly licensed) advisers.
To give you an outset idea of the most common methods of achieving the aim, here's a not bad but very simplified synopsis from wikipedia :
- ************************
Lifetime mortgage: A loan secured on the borrower's home (a mortgage loan) is made. Compounded interest is added to the capital throughout the term of the loan, which is then repaid by selling the property when the borrower (or borrowing couple) dies or moves out (perhaps into a care home). The borrower retains legal title to the home whilst living in it, and also retains the responsibilities and costs of ownership.
Interest only: A mortgage is made, on which the capital is repaid on death. Interest payments are paid whilst the borrowers remain in the property.
Home reversion: The borrowers sell all or part of their home to a third party, normally a reversion company or individual. This means all or part of their home belongs to somebody else. In return, the borrowers receive a regular income or cash lump sum (or both) and they continue to live in their home for as long as they wish.
Shared appreciation mortgage: The lender loans the borrower a capital sum in return for a share of the future increase in the growth of the property value. The borrowers retain the right to live in the property until death. The older the client the smaller the share required by the lender. This type of arrangement is no longer available in the UK.
Home income plan: A lifetime mortgage where the capital is used to provide an income by purchasing an annuity often provided by the lender, which is often an insurance company.
UK Equity Release Schemes: Generally available to over 55 year homeowners with sufficient equity in their property, who can opt to release some of the capital from their homes via an equity release arrangement from specialists lenders.
- ***************************
IF you get said specialist the process is tedious. Early in it, if he's a good'un, relatives/potential beneficiaries of the borrowers' estate will be asked to participate in the process and will be given an understanding of the process and its implications. Then to determine which type (if any ) of product is suitable, a lengthy and detailed fact find of not only the borrowers but possibly also the interested parties as well will be undertaken.
Many "financial advisers" or mortgage brokers have the capability and licence to organise these products. But the one you need is one who SPECIALISES in them and in the tedious and painstaking process of analysis to determine which product of which type (if any at all) is best suited to the individual circumstances.
YOUR job, therefore, becomes locating that best adviser. NOT a well referenced IFA or mortgage broker. A well referenced specialist expert independent adviser of equity-release type products for older borrowers.
Edited by drainbrain on Sunday 24th July 20:47
Roger Irrelevant said:
" The trouble is this analysis ignores that a house is not just a financial asset but also a home, where (in my parents case), they have lived for decades, bought up 4 kids, become part of the local community and thus have no desire to move."
On this note so many people I have spoken to when buying a house on Mortgage go on about how it is such an incredible investment blah blah and how it will be worth so much in x many years but overlook that they are also living in it it and sometimes raising a family, which will incur additional costs that could potentially add to the debt (Extensions, decorate, furniture etc). Also I think that a lot of people forget the investment does not pay off until they sell the house and make a profit. Maybe to many the ER option releases a chunk of this money/profit and allows them to enjoy some of the payoff from the investment?
Edited by boombastictiger on Wednesday 27th July 17:46
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