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Equity release..should you ever ?

Including Financial Independence and Retiring Early (FIRE)
buyhighselllow
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Equity release..should you ever ?

#101087

Postby buyhighselllow » December 3rd, 2017, 4:19 pm

Basically as a couple we have no dependents, and no mortgage. We do not especially have anyone to leave our property too.From the little I know about equity release, I tend to see it as a way of boosting one's dwindling funds in retirement. Aside from releasing capital by moving to a cheaper property when older, should equity release be seen as something one does electively to generate a bigger retirement pot? Sitting on a large chunk of of one's net wealth somehow seems rather "unfoolish".. What things should folks in our position consider ?

CryptoPlankton
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Re: Equity release..should you ever ?

#101107

Postby CryptoPlankton » December 3rd, 2017, 5:06 pm

Funnily enough, I've just read a Moneyweek article discussing this as "Nationwide has become the first major mortgage lender to provide a lifetime mortgage". It's available to people 55 to 84 and interest rates are in the range 3.8%-4.8% (this being the main concern for MW, because of the long-term erosion of equity). I think it really boils down to personal choice/requirements.

A couple of links to further information from Nationwide:

https://www.nationwide.co.uk/about/medi ... e-mortgage

https://www.nationwide.co.uk/products/m ... ty-release

CP (no connection to Nationwide!)

tjh290633
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Re: Equity release..should you ever ?

#101140

Postby tjh290633 » December 3rd, 2017, 6:06 pm

buyhighselllow wrote:Basically as a couple we have no dependents, and no mortgage. We do not especially have anyone to leave our property too.From the little I know about equity release, I tend to see it as a way of boosting one's dwindling funds in retirement. Aside from releasing capital by moving to a cheaper property when older, should equity release be seen as something one does electively to generate a bigger retirement pot? Sitting on a large chunk of of one's net wealth somehow seems rather "unfoolish".. What things should folks in our position consider ?


Simply you are remortgaging your property, but not repaying any of the capital and allowing the interest on the mortgage to roll up, so that the sum owed continually rises. Ultimately the mortgage is repaid by selling the property.

What you do with the money lent, which is what it is, is up to you. Ideally it will grow faster than the property value, and you should be able to get an increasing income from it as dividends. If you spend it , rather than investing it and taking the income, you risk running out of money in the long run.

TJH

genou
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Re: Equity release..should you ever ?

#101241

Postby genou » December 3rd, 2017, 9:28 pm

buyhighselllow wrote:Basically as a couple we have no dependents, and no mortgage. We do not especially have anyone to leave our property too.From the little I know about equity release, I tend to see it as a way of boosting one's dwindling funds in retirement. Aside from releasing capital by moving to a cheaper property when older, should equity release be seen as something one does electively to generate a bigger retirement pot? Sitting on a large chunk of of one's net wealth somehow seems rather "unfoolish".. What things should folks in our position consider ?


Have a look here - http://www.equityreleasecouncil.com/faqs/


I believe there is no recourse to you, which if correct would mean that , in your circumstances, it is free money.

argoal
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Re: Equity release..should you ever ?

#101426

Postby argoal » December 4th, 2017, 2:14 pm

One of the biggest brains in the retirement planning arena - Wade Pfau - is a fan of reverse mortgages (they call them that in the US) as a way to maximise retirement spending.

He has published a series of articles and an ebook on the subject that might be of interest if you wanted to do a deeper digve into the subject.

This article give a flavour of the argument for using equity release.

https://retirementresearcher.com/improving-retirement-income-efficiency-using-reverse-mortgages/

The article is a bit UScentric but the principles should apply equally to a UK situation.

Hariseldon58
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Re: Equity release..should you ever ?

#102615

Postby Hariseldon58 » December 7th, 2017, 9:53 pm

Extreme caution advised...

You risk the unexpected, life can take many twists and turns and it’s the unanticipated that gets you every time. Entering into a generally inflexible long term contract has many downsides when something crops up.

The % released is generally not that generous and the miracle of compound interest is working against you the more time goes by.
You may find the small print requires you to maintain the property and someone else may decide that the roof you thought was ok should be replaced etc, it’s in the lenders interest to ensure the property they may end up owing is in tip top condition.

When you are younger owing a property relieves you of paying rent in the future for housing, when you are older the present value of no rent is much lower, you have less years that you’ll need a home for, I’d think about selling the house and renting if you are short of cash and years to live in your existing home.

PingPong
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Re: Equity release..should you ever ?

#105628

Postby PingPong » December 21st, 2017, 9:45 pm

tjh290633 wrote:
buyhighselllow wrote:Basically as a couple we have no dependents, and no mortgage. We do not especially have anyone to leave our property too.From the little I know about equity release, I tend to see it as a way of boosting one's dwindling funds in retirement. Aside from releasing capital by moving to a cheaper property when older, should equity release be seen as something one does electively to generate a bigger retirement pot? Sitting on a large chunk of of one's net wealth somehow seems rather "unfoolish".. What things should folks in our position consider ?


Simply you are remortgaging your property, but not repaying any of the capital and allowing the interest on the mortgage to roll up, so that the sum owed continually rises. Ultimately the mortgage is repaid by selling the property.

What you do with the money lent, which is what it is, is up to you. Ideally it will grow faster than the property value, and you should be able to get an increasing income from it as dividends. If you spend it , rather than investing it and taking the income, you risk running out of money in the long run.

TJH


I don't know if things have changed but my Mother did an equity release and interest did not start until the day of death. But if it wasn't repaid within 12 months then the company could take the house and extract 3x the loan.

UncleEbenezer
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Re: Equity release..should you ever ?

#106105

Postby UncleEbenezer » December 25th, 2017, 12:46 pm

Hariseldon58 wrote:When you are younger owing a property relieves you of paying rent in the future for housing, when you are older the present value of no rent is much lower, you have less years that you’ll need a home for, I’d think about selling the house and renting if you are short of cash and years to live in your existing home.


When you are younger, renting gives you the flexibility to move where your work takes you. When you're older that becomes less of a concern.

And as I get older I find myself more unhappy with the petty and arbitrary restrictions imposed by most landlords. Things like "no kids no pets" rules, even when it's a family-sized house in the middle of open moorland!

For what it's worth, it was just five years from my first VCT investment to when the VCT income covered the rent in full. On a house whose market price would be at least twice what I'd invested. Something to bear in mind when weighing up the economics of it. But as against that, rent has to be paid out of taxed income, unless you have a sufficient tax-exempt stream.

As for equity release for the OP, I think there is a potentially serious risk with that. If you ever want to sell up - e.g. if age overtakes you to the point where the present house becomes too hard to manage - you're stuffed. Your lender will need paying off before you can sell, and you may find the move itself more than you can manage.

jackdaww
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Re: Equity release..should you ever ?

#106119

Postby jackdaww » December 25th, 2017, 5:22 pm

i have wondered about the scenario where the last incumbent has health issues.

could there be pressure from the lender to push for a move into a home ?

so they get their hands on the property ...

my conclusion so far is ---

NO -- NEVER . dont do it .

:x

DrBunsenHoneydew
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Re: Equity release..should you ever ?

#106258

Postby DrBunsenHoneydew » December 26th, 2017, 11:43 pm

Why would they want to take the house prematurely if they could get more equity share by carrying on for more years?


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