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.

 

[LDC]

Jesus fucking christ.... equity release. I'm just about to sort one out, here's the story...

My dad and his wife had a little 2 bedroom terraced house in about 1990 in a nice town in the SE. They decided they wanted to move away when they retired so put it on the market for (iirc) about £90,000 in 1990/91. It couldn't sell so they got a £45,000 equity release loan to buy a small house in Spain. They lasted a year there and hated it so sold that house at a massive loss (it's possible they actually walked away from it, not exactly sure). Luckily they moved back to their original house in the SE that had failed to sell still. Over the next 10 or so years they managed to get 2 further equity release loans for about another £30,000 (based on the increase in property prices in the area).

Fast forward to 2017 when my dad dies, and I look into the equity release loans. Compound interest over the intervening 27+ years has led to them owing about £250,000, pretty much the value of the house. The company also started making demands on my dad's wife to spend money to keep the house in good condition, and she had to pay £10,000 to get some roof work done, or she risked legal and financial issues. I looked into it, challenged the original loan, etc., to no luck.

Anyway, she's on her last legs now, and when she dies I think it looks like the entire value of the house (now about £300,000) will go to the equity release company.

 

[UnderOpenSky]

Jesus fucking christ.... equity release. I'm just about to sort one out, here's the story...

My dad and his wife had a little 2 bedroom terraced house in about 1990 in a nice town in the SE. They decided they wanted to move away when they retired so put it on the market for (iirc) about £90,000 in 1990/91. It couldn't sell so they got a £45,000 equity release loan to buy a small house in Spain. They lasted a year there and hated it so sold that house at a massive loss (it's possible they actually walked away from it, not exactly sure). Luckily they moved back to their original house in the SE that had failed to sell still. Over the next 10 or so years they managed to get 2 further equity release loans for about another £30,000 (based on the increase in property prices in the area).

Fast forward to 2017 when my dad dies, and I look into the equity release loans. Compound interest over the intervening 27+ years has led to them owing about £250,000, pretty much the value of the house. The company also started making demands on my dad's wife to spend money to keep the house in good condition, and she had to pay £10,000 to get some roof work done, or she risked legal and financial issues. I looked into it, challenged the original loan, etc., to no luck.

Anyway, she's on her last legs now, and when she dies I think it looks like the entire value of the house (now about £300,000) will go to the equity release company.

They really can screw you. We started looking at for my Dad to get live in care rather then him moving to a home and seemed brutal.

 

[bcuster]

I like having a home equity line of credit (HELOC) in place. Cash when you need at a low(er) interest rate

 

[Hollis]

Jesus fucking christ.... equity release. I'm just about to sort one out, here's the story...

My dad and his wife had a little 2 bedroom terraced house in about 1990 in a nice town in the SE. They decided they wanted to move away when they retired so put it on the market for (iirc) about £90,000 in 1990/91. It couldn't sell so they got a £45,000 equity release loan to buy a small house in Spain. They lasted a year there and hated it so sold that house at a massive loss (it's possible they actually walked away from it, not exactly sure). Luckily they moved back to their original house in the SE that had failed to sell still. Over the next 10 or so years they managed to get 2 further equity release loans for about another £30,000 (based on the increase in property prices in the area).

Fast forward to 2017 when my dad dies, and I look into the equity release loans. Compound interest over the intervening 27+ years has led to them owing about £250,000, pretty much the value of the house. The company also started making demands on my dad's wife to spend money to keep the house in good condition, and she had to pay £10,000 to get some roof work done, or she risked legal and financial issues. I looked into it, challenged the original loan, etc., to no luck.

Anyway, she's on her last legs now, and when she dies I think it looks like the entire value of the house (now about £300,000) will go to the equity release company.

Jesus - the problem it would appear with equity release is you end up paying interest on the interest... sounds too good to be true probably is. But again, if it means someone has a higher standard of living while they're alive then I guess it's a choice you make.

 

[LDC]

Jesus - the problem it would appear with equity release is you end up paying interest on the interest... sounds too good to be true probably is. But again, if it means someone has a higher standard of living while they're alive then I guess it's a choice you make.

Yeah it's their house so their choice, managed to re-distribute inherited wealth, just to a company rather tha the proles!

It does mean she's got no money for a better level of care now though, which she would have done if they hadn't taken the loan out. My dad had a lifetime of terrible financial decisions, and a gambling habit as well.