Equity Release - Is it a terrible idea?
Discussion
My folks are in their 70s, and own their house outright. Since they finished paying off their mortgage a few years ago the house has absolutely shot up in value (desirable Surrey commuter village), which they are obviously very pleased with. Dad has a healthy (final salary) pension income, and they have other savings tucked away in investments for care etc.
My brother and I are pretty comfortable, and don't really want them to sit on the nest-egg and wait to pass it onto us. I'd much prefer they took some of that capital out and went off on a load of jollies and cruises for as long as they are able.
I know nothing about Equity Release, other than it's most probably a bad idea because it get advertised on terrible TV channels. My quick Googling suggests it just works as effectively borrowing a tax free lump a company that gets paid back through their estate once they are gone.
Does anyone have any advice here? Am I being staggeringly naive? Is there a better way to do it?
My brother and I are pretty comfortable, and don't really want them to sit on the nest-egg and wait to pass it onto us. I'd much prefer they took some of that capital out and went off on a load of jollies and cruises for as long as they are able.
I know nothing about Equity Release, other than it's most probably a bad idea because it get advertised on terrible TV channels. My quick Googling suggests it just works as effectively borrowing a tax free lump a company that gets paid back through their estate once they are gone.
Does anyone have any advice here? Am I being staggeringly naive? Is there a better way to do it?
Unless there is a serious reason not to do it then by far the best way is to down size.
Sell the house, buy a cheaper one. Its going to cost many many times less.
That said, if you want to do ER then just be aware of the fees to set up and the fees at the end.
Then of course the terms of the repayment at the end. Taking into account that the end might be next year or it might be in 30 years...
Its something we will consider in years to come but we will down size first and use ER as a last resort.
Sell the house, buy a cheaper one. Its going to cost many many times less.
That said, if you want to do ER then just be aware of the fees to set up and the fees at the end.
Then of course the terms of the repayment at the end. Taking into account that the end might be next year or it might be in 30 years...
Its something we will consider in years to come but we will down size first and use ER as a last resort.
gotoPzero said:
Unless there is a serious reason not to do it then by far the best way is to down size.
Sell the house, buy a cheaper one. Its going to cost many many times less.
This. Sell the house, buy a cheaper one. Its going to cost many many times less.
Consider also what they'll use the money for. Your father has a healthy pension, what will they use the cash for? Holidays? Luxuries?
Can he not do these things already?
ER is commonly used by those who want cash out of their house but don't want to move, have low income pensions or similar and few family to leave the house to if they die . For this, it can be quite useful although it does again beg the question again as to why not just move.
gotoPzero said:
Unless there is a serious reason not to do it then by far the best way is to down size.
Sell the house, buy a cheaper one. Its going to cost many many times less.
That said, if you want to do ER then just be aware of the fees to set up and the fees at the end.
Then of course the terms of the repayment at the end. Taking into account that the end might be next year or it might be in 30 years...
Its something we will consider in years to come but we will down size first and use ER as a last resort.
Thanks so much!Sell the house, buy a cheaper one. Its going to cost many many times less.
That said, if you want to do ER then just be aware of the fees to set up and the fees at the end.
Then of course the terms of the repayment at the end. Taking into account that the end might be next year or it might be in 30 years...
Its something we will consider in years to come but we will down size first and use ER as a last resort.
They aren't going to sell up and downsize now, I suspect. They only moved (downsizing) to their current place a decade ago, and are close to family etc.
Fees seem pretty transparent to me, but a good one to flag. Presumably the amount repayable on death depends how long they have the money for?
Muzzer79 said:
gotoPzero said:
Unless there is a serious reason not to do it then by far the best way is to down size.
Sell the house, buy a cheaper one. Its going to cost many many times less.
This. Sell the house, buy a cheaper one. Its going to cost many many times less.
Consider also what they'll use the money for. Your father has a healthy pension, what will they use the cash for? Holidays? Luxuries?
Can he not do these things already?
ER is commonly used by those who want cash out of their house but don't want to move, have low income pensions or similar and few family to leave the house to if they die . For this, it can be quite useful although it does again beg the question again as to why not just move.
They have a load of things on their bucketlists that they wouldn't currently be able to do without more cash (e.g. we're planning to go to Australia for the Lions rugby in two years).
Is it really that bad an idea?
Downszing is fine, but a, it means they have to move which is stressful and they might not want to, and b, if house prices continue to rise, they make less money because they own a less valuable house. Legal & General do a lifetime interest only mortgage which is another alternative. Say their house is worth £1m. Maybe take out an interest only mortgage for £250K. At say 5% currently, that's about a grand a month. They can pay that out of dad's pension, plus they get state pension.
If they die in 10 years, they'll have paid £120K, if interest rates don't fall over that period. But the house might be worth £1.5m by then. You and your brother sell up, pay off the £250K, and split £1.25m. And your parents have had a decent chunk of dough to spunk of cruises or whatever.
And they are in control. If one suddenly gets ill, and they can't do the things they wanted with the £250K, they can paid some or all of it back, leaving them with no or a much lower monthly payment. Or they might burn thru the £250K and take out more. I think L&G go up to 50% LTV. Or downsize later and pay off the loan.
If they die in 10 years, they'll have paid £120K, if interest rates don't fall over that period. But the house might be worth £1.5m by then. You and your brother sell up, pay off the £250K, and split £1.25m. And your parents have had a decent chunk of dough to spunk of cruises or whatever.
And they are in control. If one suddenly gets ill, and they can't do the things they wanted with the £250K, they can paid some or all of it back, leaving them with no or a much lower monthly payment. Or they might burn thru the £250K and take out more. I think L&G go up to 50% LTV. Or downsize later and pay off the loan.
Edited by TwigtheWonderkid on Tuesday 1st August 12:29
Loads of questions to be asking. They may be prevented (or require permission) for any changes, refubishments etc. They may have to move the surviving partner out when one dies or goes into care. Watch out for IHT as well they may be moving an asset outside of IHT to one inside.
https://www.moneysavingexpert.com/mortgages/equity...
Do they really need a lump of cash now if they have good pensions? Basically they are just borrowing money at a high interest rate.
https://www.moneysavingexpert.com/mortgages/equity...
Do they really need a lump of cash now if they have good pensions? Basically they are just borrowing money at a high interest rate.
Mr Pointy said:
Loads of questions to be asking. They may be prevented (or require permission) for any changes, refubishments etc. They may have to move the surviving partner out when one dies or goes into care. Watch out for IHT as well they may be moving an asset outside of IHT to one inside.
https://www.moneysavingexpert.com/mortgages/equity...
Do they really need a lump of cash now if they have good pensions? Basically they are just borrowing money at a high interest rate.
Take the point about borrowing at high interest rates, but those interest rates are completely written off by the money they've made on the house since they paid off their mortgage.https://www.moneysavingexpert.com/mortgages/equity...
Do they really need a lump of cash now if they have good pensions? Basically they are just borrowing money at a high interest rate.
Great pointers on the other restrictions that I wasn't aware of though - thank you.
The thing is they have one good pension, but my mother never really worked. So it's enough for a comfortable lifestyle, but not really enough for them to indulge.
TwigtheWonderkid said:
Downszing is fine, but a, it means they have to move which is stressful and they might not want to, and b, if house prices continue to rise, they make less money because they own a less valuable house. Legal & General do a lifetime interest only mortgage which is another alternative. Say their house is worth £1m. Maybe take out an interest only mortgage for £250K. At say 5% currently, that's about a grand a month. They can pay that out of dad's pension, plus they get state pension.
If they die in 10 years, they'll have paid £120K, if interest rates don't fall over that period. But the house might be worth £1.5m by then. You and your brother sell up, pay off the £250K, and split £1.25m. And your parents have had a decent chunk of dough to spunk of cruises or whatever.
And they are in control. If one suddenly gets ill, and they can't do the things they wanted with the £250K, they can paid some or all of it back, leaving them with no or a much lower monthly payment. Or they might burn thru the £250K and take out more. I think L&G go up to 50% LTV. Or downsize later and pay off the loan.
Interesting angle. I wasn't aware of this at all.If they die in 10 years, they'll have paid £120K, if interest rates don't fall over that period. But the house might be worth £1.5m by then. You and your brother sell up, pay off the £250K, and split £1.25m. And your parents have had a decent chunk of dough to spunk of cruises or whatever.
And they are in control. If one suddenly gets ill, and they can't do the things they wanted with the £250K, they can paid some or all of it back, leaving them with no or a much lower monthly payment. Or they might burn thru the £250K and take out more. I think L&G go up to 50% LTV. Or downsize later and pay off the loan.
Edited by TwigtheWonderkid on Tuesday 1st August 12:29
I'm in my 70's and have a "healthy pension". I also have a son who is "comfortable". The idea of him suggesting we take an equity release mortgage on our dwelling so that we can "go on a load of jollies and cruises for as long as we're able" is hilarious! (the wife disagrees, she thinks it's horrifying 
).
I'd love to be a fly on the wall when you and the brother rock up for 'The Meeting'
).I'd love to be a fly on the wall when you and the brother rock up for 'The Meeting'
C70R said:
Interesting angle. I wasn't aware of this at all.
Let's say they downsize, £1m house to £500K. And they blow £250K before death. And house prices rise 50% between now and their death. You and your brother share £750K from the house, £250K of unspent savings, plus the £120K additional savings they would have spent on interest payments. £1.120m. Not factoring in deducting fees and costs of moving. Or keep the £1m house and do the £250K interest only mortgage. You and your brother share £1.25m for the house minus the mortgage. As a family, you're £130K better off, plus your folks have stayed in the house they love.
Obviously completely made up figures, but you get the idea.
C70R said:
They have steady income and more than enough invested to take care of end-of-life stuff, but they are generally very risk averse with spending it.
Your parents don't strike me as the sort of people who would be remotely interested in taking on the 'debt' of an equity release loan.Portia5 said:
I'm in my 70's and have a "healthy pension". I also have a son who is "comfortable". The idea of him suggesting we take an equity release mortgage on our dwelling so that we can "go on a load of jollies and cruises for as long as we're able" is hilarious! (the wife disagrees, she thinks it's horrifying ).
I'd love to be a fly on the wall when you and the brother rock up for 'The Meeting'
It's almost like everyone is different, right? ).I'd love to be a fly on the wall when you and the brother rock up for 'The Meeting'
They have lots of things they'd like to do, but haven't had the opportunity, and don't feel comfortable spending their pension income on those things right now.
They have money sitting in that house that they've done nothing to 'earn', and my brother and I don't need them to worry about leaving it to us.
Hence me asking the question.
JackJarvis said:
C70R said:
They have steady income and more than enough invested to take care of end-of-life stuff, but they are generally very risk averse with spending it.
Your parents don't strike me as the sort of people who would be remotely interested in taking on the 'debt' of an equity release loan.TwigtheWonderkid said:
C70R said:
Interesting angle. I wasn't aware of this at all.
Let's say they downsize, £1m house to £500K. And they blow £250K before death. And house prices rise 50% between now and their death. You and your brother share £750K from the house, £250K of unspent savings, plus the £120K additional savings they would have spent on interest payments. £1.120m. Not factoring in deducting fees and costs of moving. Or keep the £1m house and do the £250K interest only mortgage. You and your brother share £1.25m for the house minus the mortgage. As a family, you're £130K better off, plus your folks have stayed in the house they love.
Obviously completely made up figures, but you get the idea.
C70R said:
Portia5 said:
I'm in my 70's and have a "healthy pension". I also have a son who is "comfortable". The idea of him suggesting we take an equity release mortgage on our dwelling so that we can "go on a load of jollies and cruises for as long as we're able" is hilarious! (the wife disagrees, she thinks it's horrifying ).
I'd love to be a fly on the wall when you and the brother rock up for 'The Meeting'
It's almost like everyone is different, right? ).I'd love to be a fly on the wall when you and the brother rock up for 'The Meeting'
They have lots of things they'd like to do, but haven't had the opportunity, and don't feel comfortable spending their pension income on those things right now.
They have money sitting in that house that they've done nothing to 'earn', and my brother and I don't need them to worry about leaving it to us.
Hence me asking the question.
As other pensions threads have shown, there is a massive difference in what everyone is like, but I'd just like to thank you for asking the question and seeing some of the other helpful replies (I'd no idea about the lifetime mortgage that Twig posted about). Not currently in this situation myself, but it's good to know options later on in my retirement.
I found that the option of downsizing doesn't really work out for us having checked the figures: The hassle of the move is one thing, but what gets glossed over sometimes is that the 'new' place will probably need work doing, or at least some changes to make it how the new owner wants to live in for the next however many years. That and the various costs of the move eat into the funds released and I was surprised how little might be left if we just moved back to a similar place we had 22 years ago...maybe £50-70k to splurge if that once the next place is bought and sorted out to a similar standard to our current one, plus we'd have much less space and back to being able to hear the neighbours through the wall again. No thanks.
In short I can understand your parents wanting to stay put now. I hope you can find a solution that works for them.
OP, do you feel that something as drastic as equity release is necessary for your parents to enjoy the lifestyle that they want?
You mentioned that "they are generally very risk averse with spending it" - so, if they don't know already, would it be worth sitting down with them and calculating their excess monthly income (i.e. pensions less necessities such as heating, food, car costs, council tax etc.)? That might demonstrate to them that they can already afford do some of their bucket-list items on a regular basis without running out of cash.
Also, is the bulk of their savings earmarked for care home costs? While that's very prudent, it is saving for something that might never arise. There is an argument for them to use some of those savings now to enjoy themselves instead.
You mentioned that "they are generally very risk averse with spending it" - so, if they don't know already, would it be worth sitting down with them and calculating their excess monthly income (i.e. pensions less necessities such as heating, food, car costs, council tax etc.)? That might demonstrate to them that they can already afford do some of their bucket-list items on a regular basis without running out of cash.
Also, is the bulk of their savings earmarked for care home costs? While that's very prudent, it is saving for something that might never arise. There is an argument for them to use some of those savings now to enjoy themselves instead.
C69 said:
OP, do you feel that something as drastic as equity release is necessary for your parents to enjoy the lifestyle that they want?
You mentioned that "they are generally very risk averse with spending it" - so, if they don't know already, would it be worth sitting down with them and calculating their excess monthly income (i.e. pensions less necessities such as heating, food, car costs, council tax etc.)? That might demonstrate to them that they can already afford do some of their bucket-list items on a regular basis without running out of cash.
Also, is the bulk of their savings earmarked for care home costs? While that's very prudent, it is saving for something that might never arise. There is an argument for them to use some of those savings now to enjoy themselves instead.
Having recently watched a close relative's estate get drained to cover dementia care costs, the likelihood of them spending their savings is pretty slim.You mentioned that "they are generally very risk averse with spending it" - so, if they don't know already, would it be worth sitting down with them and calculating their excess monthly income (i.e. pensions less necessities such as heating, food, car costs, council tax etc.)? That might demonstrate to them that they can already afford do some of their bucket-list items on a regular basis without running out of cash.
Also, is the bulk of their savings earmarked for care home costs? While that's very prudent, it is saving for something that might never arise. There is an argument for them to use some of those savings now to enjoy themselves instead.
TwigtheWonderkid said:
Downszing is fine, but a, it means they have to move which is stressful and they might not want to, and b, if house prices continue to rise, they make less money because they own a less valuable house. Legal & General do a lifetime interest only mortgage which is another alternative. Say their house is worth £1m. Maybe take out an interest only mortgage for £250K. At say 5% currently, that's about a grand a month. They can pay that out of dad's pension, plus they get state pension.
If they die in 10 years, they'll have paid £120K, if interest rates don't fall over that period. But the house might be worth £1.5m by then. You and your brother sell up, pay off the £250K, and split £1.25m. And your parents have had a decent chunk of dough to spunk of cruises or whatever.
And they are in control. If one suddenly gets ill, and they can't do the things they wanted with the £250K, they can paid some or all of it back, leaving them with no or a much lower monthly payment. Or they might burn thru the £250K and take out more. I think L&G go up to 50% LTV. Or downsize later and pay off the loan.
I don't know much about ER but in the above example, if the property goes up by 50% from £1M to £1.5M doesn't the ER loan also increase because the loan is selling a %share of the house?If they die in 10 years, they'll have paid £120K, if interest rates don't fall over that period. But the house might be worth £1.5m by then. You and your brother sell up, pay off the £250K, and split £1.25m. And your parents have had a decent chunk of dough to spunk of cruises or whatever.
And they are in control. If one suddenly gets ill, and they can't do the things they wanted with the £250K, they can paid some or all of it back, leaving them with no or a much lower monthly payment. Or they might burn thru the £250K and take out more. I think L&G go up to 50% LTV. Or downsize later and pay off the loan.
Edited by TwigtheWonderkid on Tuesday 1st August 12:29
I could be completely wrong, not sure, can't be bothered to research but just a thought.
OldSkoolRS said:
I guess one of the differences in Portia5's case is that they have a number of BTL properties that they could sell......
.....ah!! you mean our savings tucked away in (property) investments to pay for care etc....Well yeah I suppose if we developed a burning desire to indulge in loads of jollies and cruises while we're still able to we COULD dump some properties, OR, alternatively, we could mortgage the home via equity release....
. OR I COULD ASK MY "COMFORTABLE" SON TO BUY ME A TREAT assuming he never offered to do it off his own bat
If we're talking 'jollies while I'm still able" I quite fancy a nice apartment in the 7th arrondissement and a season ticket to the local w
ehouse rather than the cruises, tho. Can't think of anything much less 'jolly' than a cruise.Have you or anyone else on the Safe Space for the Semi-Senile thread considered it? Or, worse, had their kids suggest it?
It reminds me of 80 year old Mr Geronimo's sons trying to persuade him to sell his idyllic finca and land to developers in Portichol in the 80's. He told them to f
k off. Quite right too!! After all, what use did anyone think he had for the money? (that's who I got the joking Paris+prostitute 'idea' from)But in all seriousness, why on earth would an elderly couple who probably lived quite conservatively all their lives and probably spent decades paying off a mortgage want ANOTHER mortgage in their old age so they can squander it on nonsense? Maybe they get great satisfaction thinking about the nest egg they're keeping warm for their GRANDchildren rather than the children of the moneylenders.
Gassing Station | Finance | Top of Page | What's New | My Stuff