Episode 141 - Equity Release V: Interest Calculations 

It really should be a last resort, for sure

Nope. Interest rates are usually fixed for life or at worst capped so you know the maximum it will ever be. Yes, they have a charge on your house, but you have a contractual right to live in it until you either a) die or b) go into long term care. There are myriad protections for borrowers, but it is meant to be a last resort.

@@PeteMatthew exactly, how is a pensioner going to pay off a £50,000 loan, the banks are relying on both options

Answering my own (very dumb) question here. There would be no point in trying to do what I asked. It would simply be more straightforward to take a lump sum of £50k equity and use it over the two year period. No need to respond to my question thanks. Love your vids.

Hi Malc. Sorry to be tardy - been on holiday. Really important to understand that equity release mortgages aren't really meant to be paid off early. There are usually very hefty early redemption penalties, so if you're thinking of borrowing to pay it back once the inheritance arrives, I wouldn't do that. Take advice if you're unsure. And remember, there's no such thing as a dumb question ;-)

I wouldn’t do that. Equity Release should be a last resort, not an angle to try and gain tax relief on another pot.

I kind of assumed that in the amount borrowed, as many people would add the arrangement fee to the loan and pay any broker fees directly. The point of the video is to compare the roll-up of the amount owed with the amount of equity remaining

Equity release lenders will want a first charge on the property, so the existing mortgage is paid off with the equity release money by the solicitors.

On the outstanding loan, Phil. So if the property is worth £250k and you borrow £100k, it's the £100k figure that attracts interest.

@@MeaningfulMoney thanks for your response, my family member took out a lifetime mortgage in 1999 with Aviva (formerly Norwich Union), they were charged a fixed rate of interest of 2.9% to be compounded annually on the value of the property (£70,000 at the time). The loan was only £18,000. They have been advised to contact the FCA/financial ombudsman. Everything equity release expert that I have contacted (including yourself) has told me that the interest of 2.9% should of been charged on the loan of 18,000 and not the home value of 70,000. Hopefully they have a good case. Many thanks.

Ah, that's interesting. Equity release used to be like the Wild West; it's only been properly regulated in the last decade or so, prior to that it was largely voluntary self-regulation. Definitely worth pursuing, but I suppose there is a chance that this was set up as you suggest.

teabag3339 Actually, that’s pretty much EXACTLY what I’m saying. If Equity Release is something you need to explore due to your financial circumstances, then maintaining the value of your property is a pretty good outcome, if it also allows you a measure of money to enjoy life at the same time. Better than watching your property increase in value but not able to make ends meet.

@@PeteMatthew Drawdown seems the most feasible providing you pay interest only to avoid that horrendous compound interest.

Simon Vickerman 9

Just spotted this comment, which was obviously left ages ago. A good point - house prices don't always go up.

Ugh, sounds like you've had a torrid time. I'm not sure the system is at fault, but I wouldn't dream of belittling your horrible experience. Equity release should only ever be a last resort, and I'm sorry that in your case it has been more of a curse than a blessing. The aim of the video is to deal with one of the biggest misunderstandings around Equity Release which might prevent people from considering equity release as one option.

@@PeteMatthew Thanks for the reply.I think it is very much the system at fault - equity release is constantly advertised with healthy pensioners free to enjoy life but there is no focus on the reality and sharp end of the process I have mentioned. People are needing more and more long term care and modified housing. It is not the applicant as mentioned but the power of attorney/family who have to sort this out. This is hard enough(coping with constant crises, strokes, hip fractures, dementia, incontinence - these are the realities) without all assets being stripped away at increasing rates. There is a complete shut down on the publication of these downsides(I have had comments mysteriously removed when I raise the subject) but they will come to light as more struggle with these issues. The money made by these companies could transform the care system. It has destroyed my life and will do others trying to look after their parents for years to come. My father never envisioned needing 10 years plus of care packages and the devastating effect it would have on his family. If he had the full picture he would never have taken out equity release.