Alterntives to Equity Release

Discussion in 'Finance, Property, Law' started by Yokel, Aug 15, 2013.

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  1. I have recently been trying to help some people that I know - friends of the family. They are a retired couple - he is in his early seventies and she is about five years younger (I think). They have a bit of an outstanding mortgage. They recently looked into equity release as a solution, but were put off by the way the amount owed would increase every year. I suggested contacting the mortgage company and going "interest only", but he dismissed that idea as he wants to pay to replace some windows, and wants to pay of some credit card borrowing.

    Personally I think paying off credit cards at the expense of the equity in their house would be a bad idea, but I'm not sure that they would listen, even after mentioning the problem to me. The way I see it is that going interest only would leave a fixed sum owing to be the bank (call it £x), but they also want £y for windows, reducing credit card stuff, etc.

    So my solution would be to go interest free, and use money not going on the mortgage to pay the card, and deal with the windows as and when. I am missing something, or is this a sensible proposal?

    On that note, I seem to remember hearing interest free loans and Mortgages being available for Muslim people who may have a religious objection to usury (presumably the bank charges a fixed percentage instead?), so could they use a similar scheme? Either go interest free on the mortgage, and seek some sort of interest free/low interest loan secured against the long term value of the house, or do the same and pay of the existing mortgage and raise £y (or part of) the same way?

    Not sure why they asked me, as I know nothing about finance, but I am reasonably numerate, analytical, and good at finding things out on the net. They are people I know well, so I promised I would try and look into it.
     
  2. Depends on what type of scheme they went for.
    With a reversion, they just get the place valued, then agree a percentage of that value, and the homeowners get that money. Ideally they'd get enough to pay of what remained of the mortgage and cards, with some left over for a few holidays or whatever. Some of the schemes I've heard of, the homeowner retains a percentage of the equity in the property, for example, they might still own 10%.

    Equity release - Wikipedia, the free encyclopedia
     
  3. Home | www.webuyanygarden.com

    I'm going to sacrifice my shed and invite frackers in. Seriously though, I don't see how this concept can work for your average person without the acreage of the Duchy of Cornwall.
     
  4. SWJ99

    I think they were put off by the idea of losing a large share of equity. Could my out of the box ideas be of use?
     
  5. I'd have thought anything that avoids them having to effectively sell for less than the full value is worth looking at.

    Plenty of people were scared into equity release reversion schemes by salesmen who played on their fears that they could be forced to sell their houses to pay care home fees, even though this is not necessarily the case. The sales pitch used to be that if you don't own it, they can't make you sell it. But unless both husband and wife go to live in a care home, no-one can insist on them selling the house anyway.
     
  6. They don't want to move, but would like to reduce outgoings (prinicipally mortgage) and perhaps release funds for home improvements - eg double glazing.
     
  7. Seems a reasonable idea to me. They pay interest and whoever inherits the place pays off the capital when they sell. They keep a roof over their head.

    My in laws considered releasing cash on their place about three years ago, largely because they went off on one after they read a really badly written article in the local rag that told them if they went into care they'd have to sell their house to pay for it. Being pensioners that thought was a red rag to a bull and they were off, determined to beat the Chancellor and not thinking straight.

    It was some deal whereby they got 80% of the value of the house but surrendered ownership. They woudln't have to move out but they did pay a rent to stay in it.

    I initially told them that being forced to sell for care would never happen because I would happily pay for a one way ticket to Switzerland for them. I even offerd to do it straight away but they turned me down. When that didn't placate them I demonstrated to them that in about 12 to 15 years they would not have a penny left, having paid it all back in rent, and they would no longer own their house so would end up homeless and assetless with no benefit to them at all.

    That seemed to calm them down. That and the fact we took the Deeds off them and locked them away.
     
  8. UberMong (a most suitable name)

    You're as helpful as an extra foreskin. BTW you're talking about a different type of scheme...
     
  9. Tytus_Barnowl

    Tytus_Barnowl On ROPs

    No disrespect meant but the chance of any unsecured loan as an OAP is a non starter.
    1. Get rid of that credit card bill NOW. Have either of them got families?
    2. Evaluate existing assets (house) and include growth potential.
    3. Evaluate need for new windows.
    I would give the same advice to a couple where 1 partner was still working, but frankly to use an equity release scheme to pay off a credit card loan on a house which you don't own outright is not a recipe for success.
     
  10. I think the credit card bit is only a small part of the amount asked for, the majority is to pay the outstanding mortgage. As far as I know, anyway.