Equity Loan.....Advice....?

Discussion in 'General Chat' started by advid, Apr 2, 2016.

  1. advid

    advid
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    ...I am approaching 70 years old ..no real health problems and live ‘fairly comfortably’.... My house that I own outright is approaching £370,000 or perhaps a little more in value and is in the greater London area...

    I have savings for ‘a rainy day’ in bonds etc. that I really do not want to encroach upon.
    Would it be wise or a good thing to do to take an equity loan for about £20,000 on the value of my house bearing in mind present interest rates and house prices continually rising and also amount of time i have to live ?

    What sort of interest would it accrue ? I would not intend to pay back the loan... it would be finalised on my death when my house is sold and the outstanding amount payed off and the remaining amount of my estate willed and left to my children....

    Any advice on ‘yes’ or ‘no’ would be welcome from anyone with more knowledge that me in this area of finance....
     
  2. RBZ5416

    RBZ5416
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    As with most financial decisions, it's rarely that black & white. You say interest rates are low but have you had a quote? They're typically higher than you'd get on a repayment mortgage. A quick Google suggests something around 7% currently. As you make no repayments this compounds year on year & the longer you live, the higher the annual interest. Say you live to 85, the amount repayable would be around £55k. Should you reach 100 that rises to in excess of £150k. Hopefully a good chunk of this would be offset by a rise in the property's value. But the market has crashed before & could again so the opposite is also a possibility.

    You don't say if you're married, have a partner or children who you want to benefit from the property in future, which is something to bear in mind.

    Another potential pitfall is if you need care in later life. That may well entail the property needing to be sold to fund it, which could invoke early termination penalties. 25% seems typical.

    You say you don't want to touch your "rainy day" savings but unless they're earning you a return that exceeds the interest on a lifetime mortgage, that may be a more sound decision. Then use equity release if the rainy day arrives & there's no other alternative.

    There's plenty of information out in Google land. Maybe start here:

    Equity release schemes - Equity release explained - Retirement - Which? Money

    But as with any significant financial decision, it would probably be wise to consult an independent financial advisor or two on a fixed fee basis.

    I am in no way qualified in my thoughts other than it's something I looked at briefly a couple of years ago.
     
  3. boxer dog

    boxer dog
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    Is downsizing/ moving area to release funds out of the question?
     
  4. John

    John
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    are houses really that low a price in London ?
     
  5. RBZ5416

    RBZ5416
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  6. imightbewrong

    imightbewrong
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    Depends on the area - we are right on the edge of greater London - you might find a house for that here but you would be pretty lucky. A flat or something though yes.

    OP have you had a valuation lately?

    Why not use the bonds? Are they locked in?

    You may find it hard to get a mortgage at 70... I know my FiL did although he got an arrangement in principle in the end. Do you have a pension income that would make the payments? You can't pay back 'none'.
     
  7. imightbewrong

    imightbewrong
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    Put it in rightmove for a laugh - about 320 houses at 375k or under, starting at 180k for a one-bed terrace.
     
  8. RBZ5416

    RBZ5416
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    He's not looking for a regular mortgage. The whole point of equity release is that you do indeed pay "none", at least while you're still living.
     
  9. IronGiant

    IronGiant
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  10. deantown

    deantown
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    Use your savings. If as you say you are comfortable. Equity release could end up costing you/your family a LOT of money.
     
  11. RBZ5416

    RBZ5416
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    Can't quote quotes.

    What I meant, but didn't word very well, was whether the OP is wanting a significant sum to bequeath or is happy for them just to get something.
     
  12. IronGiant

    IronGiant
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    Got it :thumbsup:
     
  13. EarthRod

    EarthRod
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    I've bought and sold many houses which I've lived in as my primary residence. In my younger years I up-sized properties until the children left home then I started downsizing (after paying off the mortgage). The last four houses have been smaller than the last (downsizing) and I now live in a lovely small mews style house.

    Each downsizing left a financial residue which was put into bonds, ISAs and some giving to the kids.

    IMO the best and easiest way to obtain tax-free assets is to move to a smaller property and if you have no mortgage the reward is definitely worthwhile.
     

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