Equity release help to understand

[Sogra]

Hi. Me and my wife both 60 and about to retire. Will have a joint income after tax of around £36k p.a

We have a house that we live in and is mortgage free with worth around £360k.

No intention of downsizing

No one to leave anything to other than quite distant cousins.

We should have a decent retirement with 2 - 3 holidays a year but if we could access the equity we could make them substantially better.

My initial reaction to equity release is that it doesn’t give value but just want to understand how it would work or any ideas.

I have a paid for financial advisor but he dismissed the equity release without really explain it to me

Not entirely sure what happens to the house as our wills both give everything to each other.

I know it’s very much first world problems but can’t get my head around it as every link I follow is someone trying to sell us something.

Thanks

[clockworks]

I'm 65, will have a pension income of around £21k nett, and house is worth around £420k.

I was looking at equity release/ retirement mortgages last year, bit of a minefield:

Interest rates are a bit higher than a normal repayment mortgage
Fees can be quite high, or the lending criteria quite onerous.
Can end up with next to nothing left if downsizing when when one partner dies

I was quite wary before I started looking, as my parents borrowed £60k to build an extension, and ended up owing £150k when dad died and mum wanted to move into a retirement apartment. 6% interest compounds up dramatically over time. There was just enough left from the sale of a 3 bed bungalow to fund a 1 bed apartment.

I decided against it - for now. If I ever reach the point of being skint, I'll consider it again.
At the time, Nationwide seemed to be offering the best combination of fees, criteria and interest rates.

[caziques]

Interesting.

To me it would depend on what you think your life expectancy is going to be - and any other savings.

36,000 after tax would seem OK for a number of years, so I would be waiting.

Say you took 180,000 in cash from the house - with a 5% compound rate of interest you would owe 360,000 after fifteen years.

[PositronicRay]

You know what? If in doubt do nowt.

Decent pension, relax for a couple of yrs and see how it goes.

[bigpriest]

It's the only way a lot of people have of generating income so not necessarily a bad idea. In simple terms, you would take out a long-term secured loan with a higher interest rate. You wouldn't have monthly repayments, the loan plus interest is repaid from the value of your property when it's sold. I believe there is also another version where you sell a portion of your property.

It provides a nice surprise for those who expect to inherit from your estate (and I suppose it dodges an element of care home fees although it may also mean you get the minimum benefit available).

[Sogra]

Thanks all.

Life expectancy is a decent shout but I guess that is about both of us.

Having a bit of a panic about trying to plan for unknowns on what will now ne a fixed income 😟

Thanks again

[Simpo Two]

PositronicRay said:

You know what? If in doubt do nowt.

That's pretty good advice for all investments IMHO.

I view equity release as an financial ejector seat. You can only use it once and you can't go back.

[hooters123]

I would suggest if you don't need to access the equity in your home that you leave it as long as possible.

The amount of equity that you will be allowed to draw is directly dependent on your age - i.e. the closer you are to statistically croaking it the more you will be allowed to draw (and similarly, the less interest will be accrued by the time you pass) so better to utilise other savings first, if you have them. If you aren't worried about leaving anything to anyone then it's quite a nice way of accessing the capital in your house without having to move.

Of course, as others have mentioned it may impact access to long term care, the ability to pay for better care for yourself etc. so try to keep something in reserve just in case.

Given your personal situation it's a little surprising a financial advisor wouldn't even discuss it with you as it is worth considering as part of a retirement plan in certain circumstances.

[Sogra]

hooters123 said:

I would suggest if you don't need to access the equity in your home that you leave it as long as possible.

The amount of equity that you will be allowed to draw is directly dependent on your age - i.e. the closer you are to statistically croaking it the more you will be allowed to draw (and similarly, the less interest will be accrued by the time you pass) so better to utilise other savings first, if you have them. If you aren't worried about leaving anything to anyone then it's quite a nice way of accessing the capital in your house without having to move.

Of course, as others have mentioned it may impact access to long term care, the ability to pay for better care for yourself etc. so try to keep something in reserve just in case.

Given your personal situation it's a little surprising a financial advisor wouldn't even discuss it with you as it is worth considering as part of a retirement plan in certain circumstances.

Yes the advisor surprised me as well. I have been with him 20 years or so and he has been a top guy. When I asked the question it was something like “would equity release be an option” ? The reply was pretty dismissive as I remember but it was a few years back so maybe it wasn’t right in relation to my age then.

Every on line calculator type thing pushes you to a company who then bombard you with phone calls so I have given up on that.

[Deesee]

How much surplus cash will you need each year on top of the 36k net?

Is it not worth getting an interest only mortgage now if you need a lump sum?

[anonymous-user]

caziques said:

Say you took 180,000 in cash from the house - with a 5% compound rate of interest you would owe 360,000 after fifteen years.

No way are they going to offer you £180K against a £360K house. You are also looking at a minimum of 6.1% interest, and as you are both 60 you could easily live for another 30 years.

I would be surprised if the equity release company offer you more than £100K

[Sogra]

Deesee said:

How much surplus cash will you need each year on top of the 36k net?

Is it not worth getting an interest only mortgage now if you need a lump sum?

Don’t “need” a lump sum but also we have a large asset that we potentially could use to do something with.

At the moment I don’t know what I don’t know so trying to gather knowledge

[Deesee]

Sogra said:

Deesee said:

How much surplus cash will you need each year on top of the 36k net?

Is it not worth getting an interest only mortgage now if you need a lump sum?

Don’t “need” a lump sum but also we have a large asset that we potentially could use to do something with.

At the moment I don’t know what I don’t know so trying to gather knowledge

You need to sit down with someone to go through it, they're lump sum options and drawdown option/s, all with household names.

If you looking to drawdown sums adhoc, look at a Flexible Lifetime Mortgage, get advise, these aren't cheap in the long run..think running up a never ending credit card bill for 30 years + the interest rolling up.

[Wacky Racer]

Equity Release is a minefield, personally I wouldn't touch it with a bargepole, but I suppose in some circumstances it might be OK, for instance if you were 75 with a house worth 800k but not much cash.

In this scenario you could always downsize if you weren't bothered about staying in your house,

Read the T&C's with a fine toothcomb and read them again ten times.

[mtvessel]

At the right time you can consider an equity release drawdown mortgage. House worth 360k, apply for 100k equity release, but only draw down 20k. The remainder can be taken as a monthly income or lump sums, say blocks of £10k, as needed. You only pay interest on the amount you have borrowed. If the house increases in value over the years I believe you can re-negotiate the numbers.

[anonymous-user]

Wacky Racer said:

Equity Release is a minefield, personally I wouldn't touch it with a bargepole, but I suppose in some circumstances it might be OK, for instance if you were 75 with a house worth 800k but not much cash.

In this scenario you could always downsize if you weren't bothered about staying in your house,

Read the T&C's with a fine toothcomb and read them again ten times.

I guess it only really works if you don't have any children to leave your wealth to and want to stay in your property until you die/go to a care home.

My Aunt and Uncle have two children and a few years ago did equity release because they wanted to build an extension on their house. Now this utterly blew my mind, effectively they are borrowing money to improve the house to then give it to the people who lent them the money.

Apparently both of their children said they didn't need the money so crack on.

[Simpo Two]

Sogra said:

Yes the advisor surprised me as well. I have been with him 20 years or so and he has been a top guy. When I asked the question it was something like “would equity release be an option” ? The reply was pretty dismissive as I remember but it was a few years back so maybe it wasn’t right in relation to my age then.

That may mean he's not qualified to advise on it. Rather than say so, he'll steer you back towards something he can make money on.

[Wacky Racer]

Joey Deacon said:

Wacky Racer said:

Equity Release is a minefield, personally I wouldn't touch it with a bargepole, but I suppose in some circumstances it might be OK, for instance if you were 75 with a house worth 800k but not much cash.

In this scenario you could always downsize if you weren't bothered about staying in your house,

Read the T&C's with a fine toothcomb and read them again ten times.

I guess it only really works if you don't have any children to leave your wealth to and want to stay in your property until you die/go to a care home.

My Aunt and Uncle have two children and a few years ago did equity release because they wanted to build an extension on their house. Now this utterly blew my mind, effectively they are borrowing money to improve the house to then give it to the people who lent them the money.



Apparently both of their children said they didn't need the money so crack on.

Sorry, in my post I meant to say if you did not have any children,

Of course, even if you did have kids, you might not get on with them for whatever reason, or they could be extremely wealthy and do not need the money.

[paulwirral]

I seem to remember reading that it’s around 30% max but obviously I’d guess they look at every case separately

[Simpo Two]

paulwirral said:

I seem to remember reading that it’s around 30% max but obviously I’d guess they look at every case separately

I need to invest in Equity Release companies - they're getting 70%!