A retirement mortgage

[Mation]

You own a property outright. Then, once you have retired, you decide you need a shed load of cash to spend on fuck knows what. So you decide to get a mortgage.

It might be 1) a lifetime mortgage, with which you get cash now, to be repaid to the lender upon your demise, when your property will be sold.

Or! It might be 2) a retirement mortgage, with which you get cash now, to be repaid immediately the property is no longer your main residence (for example, when you move to a care home).

Help me out, please, dear urbs, for I do not understand.

A) How does the lender persuade the mark that option 2 is better than option 1?

B) What's the benefit to the lender of option 2 over option 1?

 

[smmudge]

Those definitions don't really match with standard industry definitions...

Lifetime mortgage - form of equity release where you don't have to pay anything back (though you can have the option to) so the amount owed usually gets bigger. The house is sold either on death or the owner moving into long-term care and usually writes off the whole debt no matter what.

Retirement mortgage - more like a standard mortgage but for retirees, where you do have to pay something back though usually you choose interest only, so the amount you owe doesn't increase. The house is then sold either on death or the owner moving into long-term care. Not 100% but I expect the whole debt needs to be repaid from the estate even if house is in negative equity.

Both release capital from the house.

 

[rubbershoes]

Equity release is the most usual method of getting money out when you don't want to pay anything back for now

 

[Mation]

Those definitions don't really match with standard industry definitions...

Lifetime mortgage - form of equity release where you don't have to pay anything back (though you can have the option to) so the amount owed usually gets bigger. The house is sold either on death or the owner moving into long-term care and usually writes off the whole debt no matter what.

Retirement mortgage - more like a standard mortgage but for retirees, where you do have to pay something back though usually you choose interest only, so the amount you owe doesn't increase. The house is then sold either on death or the owner moving into long-term care. Not 100% but I expect the whole debt needs to be repaid from the estate even if house is in negative equity.

Both release capital from the house.

Ok, so I got the names wrong - thanks for clarifying them.

I'm talking about a lifetime mortgage, repayable when the property is no longer the main residence. So I guess the benefit to the borrower is that they don't have to worry about paying it back, because they won't need the property anymore when they're in a care home or dead.

Is there any scope, do you think, for turning it into a different kind of mortgage, other than by buying the property?

Or - stupid question alert - if the money is still there, could it just be paid back without having to sell the house?

 

[pseudonarcissus]

Ok, so I got the names wrong - thanks for clarifying them.

I'm talking about a lifetime mortgage, repayable when the property is no longer the main residence. So I guess the benefit to the borrower is that they don't have to worry about paying it back, because they won't need the property anymore when they're in a care home or dead.

Is there any scope, do you think, for turning it into a different kind of mortgage, other than by buying the property?

Or - stupid question alert - if the money is still there, could it just be paid back without having to sell the house?

I always imagined the costs for the equity release would be high, as they need to price in the risk that you live to be 103. If there is any chance you might want to reverse the equity release, and you have income, why wouldn't you go for a regular re-mortgage?

 

[smmudge]

Ok, so I got the names wrong - thanks for clarifying them.

I'm talking about a lifetime mortgage, repayable when the property is no longer the main residence. So I guess the benefit to the borrower is that they don't have to worry about paying it back, because they won't need the property anymore when they're in a care home or dead.

Is there any scope, do you think, for turning it into a different kind of mortgage, other than by buying the property?

Or - stupid question alert - if the money is still there, could it just be paid back without having to sell the house?

Well the mortgage provider will have a charge over the house, they will either want all the money back, or the proceeds from the sale of the property. So yes if there's another way of satisfying the debt they can take that rather than sell the property.

Interest rolls up like a bastard over many years. So depending of on the value of the property and size the debt gets to, you may find the latter becomes larger than the former. If you sell the property the provider will take the proceeds and write off the rest.

I'm not sure what you mean by turning it into a different kind of mortgage. Someone could inherit the house and take out their own mortgage to use to pay off the lifetime mortgage. As long as it hasn't gone into negative equity.

 

[Mation]

I always imagined the costs for the equity release would be high, as they need to price in the risk that you live to be 103. If there is any chance you might want to reverse the equity release, and you have income, why wouldn't you go for a regular re-mortgage?

Why, indeed.

(I am not the borrower.)

 

[Mation]

Well the mortgage provider will have a charge over the house, they will either want all the money back, or the proceeds from the sale of the property. So yes if there's another way of satisfying the debt they can take that rather than sell the property.

Good to know. Thank you.

Interest rolls up like a bastard over many years. So depending of on the value of the property and size the debt gets to, you may find the latter becomes larger than the former. If you sell the property the provider will take the proceeds and write off the rest.

Okay. I think I can see why this might seem like a good idea from the perspective of someone who imagines they're going to be compos mentis for longer than they actually turn out to be.

I'm not sure what you mean by turning it into a different kind of mortgage.

Nor am I

Someone could inherit the house and take out their own mortgage to use to pay off the lifetime mortgage. As long as it hasn't gone into negative equity.

This is reaching the limits of my ability to understand this in the abstract, and I don't really want to go into more detail in public, but I thank you for taking the time to give me some sensible stuff to think about.

 

[Puddy_Tat]

i'm not well enough informed to offer any worthwhile advice, other than that anything like this is a bit of a gamble between individual and lender about how long someone's going to live for.

there are also some deals out there that verge on scammy, but are legal, so all i can advise is tread carefully.

some established building societies offer options for mortgages in later life, newbury (for example) do, although not sure they take on customers too far from their patch. nationwide appear to have stopped doing this sort of thing.

 

[Hollis]

I suppose the reason someone might opt for a retirement mortgage you pay off when you go into care, is that you don't need a house anymore, so you settle the mortgage and use the remaining funds from the house sale to fund your care.

With the alternative lifetime mortgage you're in a care home, but still have the cash tied up in the house, and still being charged additional interest on the mortgage.

So, in some circumstances there is some logic to it.

There's stuff here on it - that's Retirement Mortgages as per smmudge's definition:

https://www.moneyhelper.org.uk/en/homes/buying-a-home/retirement-interest-only-mortgages

 

[Mation]

there are also some deals out there that verge on scammy, but are legal, so all i can advise is tread carefully.

Thank you. However, this is a deal done long ago.

All that's happened now is that I've found out about it. Parent - then in the early stages of dementia, I now think, though it's difficult to separate from all of the their other disorders - didn't see fit at the time to tell any of their children.

I suppose the reason someone might opt for a retirement mortgage you pay off when you go into care, is that you don't need a house anymore, so you settle the mortgage and use the remaining funds from the house sale to fund your care.

With the alternative lifetime mortgage you're in a care home, but still have the cash tied up in the house, and still being charged additional interest on the mortgage.

So, in some circumstances there is some logic to it.

There's stuff here on it - that's Retirement Mortgages as per smmudge's definition:

https://www.moneyhelper.org.uk/en/homes/buying-a-home/retirement-interest-only-mortgages

Oh, thank you, thank you. That makes this slightly less awful/more sanity preserving in terms of wtf they were thinking. They must have thought they were being sensible and not a burden, and can't have envisaged the current situation in which things are now a godawful fucking mess.

 

[Mation]

Well, having spoken to someone who knew a bit about Parent's finances at the time they took out the mortgage and a couple of years after, there is a faint glimmer of hope.

If they didn't get fleeced on some crackpot scheme and lose it all, it's possible they put the money into a savings account

It doesn't seem ever to have gone into their current account.