My grandad completely forgot he took out a lifetime mortgage

It is legal and not at all dodgy (although they were missold in the past they're highly regulated now). In the UK people's wealth tends to be tied up in their house and pensions are increasingly small. The number of ERMs being sold is increasing as people look to release equity to pay for retirement or to pass on to their children at an earlier stage for housing deposits, and they are expected to increasingly become a key part of retirement planning. They can also be used to release equity to pay for care at home.

They're a very useful tool to allow people to stay in comfort in their homes in old age, but they do limit the inheritance that can be passed on.

From experience, it takes ages to get POA, so not much use now, plus he was of sound mind at the time of the transaction many years ago, so I don’t see what she could do retrospectively. He’s secure and won’t be made homeless.

I would consider one in my position in life, house worth $1M and only one beneficiary when I die, my current mortgage on that property is $300K, instead of busting my balls to pay the $300K off in the next 5 years, I could transfer that to a lifetime mortgage and carry on paying a mortgage (the interest payment of 4% on the 300K) until I die. When I die my beneficiary will still get the $700K value in my home and the mortgage company would get their $300K back. If I didn't pay the 4% every month and I lived for 20 years that total interest amount would be $240,000 which the company would also be entitled to out of the sale of my property, which would still give the beneficiary $460K out of the sale of my home (700k-240k).

I think it's a really good idea for some people and some situations.

and everything was explained at the time

As the FCA report shows, many companies don't explain things adequately.

I dont think saying he forgot will do anything unless it can be proven he had dementia when it was taken out otherwise everyone could say that!
You cant argue that older people shouldn't be allowed to release equity as thats hardly fair on those who need it and have fulll capacity to make their own financial decisions

This is exactly the point, @tiddletiddleboomboom
Even the best regulation can't protect against people of sound mind making decisions they later wish they hadn't - or sometimes which the family wish they hadn't - and it's not as if the principle of accrued interest is unknown

In some ways this principle's no different to ordinary mortgage interest, except that it's the householder who owns the place at the end of it, so perhaps the real objection lies in the house being "given away", even though that's not what's actually happened?

I appreciate you having only just found out about this and actually what these financial products are. But they are a financial agreement that provides money which then involves significant compound interest added to the original loan year on year.

The lender has no obligation or necessity to check the product is still suitable as the loan money has been supplied and the terms of the loan stand.

The problem being that the compound interest over say 20 or 25 years is incredibly high and the original purpose of the loan is a dark distant memory.

But statements have been issued and ignored. The financial statements will show the current position and the initial policy will show the terms.

For some people they work well as some people may not have had the money for instance to pay off their mortgage and use this type of equity release as the way to do so. But obviously it comes at a price. The price being no inheritance left to relatives, but it’s allowed them to remain in their home.

the problem is people don't understand how they work and expect the lender to just give $150K out against the value of a home and expect them to realise that money back in 10/20 or even 30 years time without anything in it for them

As the FCA report I linked to earlier illustrates, it is up to lenders to ensure that the person they deal with understands exactly how it works. Ethics aside, the companies are opening themselves up to the possibility of having to pay compensation (as with the Endowment and PPI miss-selling scandals) if they don't.

Are you in the USA?

This is awful for you all and I’m so sorry op.

My grandfather passed this year and he left savings in the bank. He lived with my parents so there was no house. He was so proud and felt reassured in his final years that he could leave something for his family and I know it will help out his children and their families quite a bit when the money eventually comes through.

Equally, when I pass, I would want to be able to leave something for my children. And I can only imagine how it will help them, and I’m sure they’ll be very grateful. It brings me much direction and happiness to save for them.

So for your grandfather to suddenly have the realisation that his money is gone, will be very hard for him I’m sure. And probably yourself too. That’s nothing to be ashamed about as far as I’m concerned. Some company has loaned your grandfather a smallish amount of money and will now reap the benefits of your grandfathers life, work, love etc. It is horrible, disappointing, enraging even.

But if there is no recourse then you have nothing to do but ensure your grandfather knows you’re ok with this. Reassure him and distract him.

Im am really sorry this is happening,

To those who said he should have been making payments- if it was equity release, there is nothing to pay until the house is sold. He had annual letters which showed how much would be owed, and as he didn’t need to make payments, there was nothing for the company to follow up and check on. Can’t blame the OP for feeling a bit disappointed about no inheritance, anyone would be if they’re honest, but trying to make him feel less stressed about it is the best way forward, as nothing can be done about it now, seeing he was of sound mind, and everything was explained at the time. It would be very hard to prove he wasn’t.

The gf isn't denying he took this out, is he? He just claims not to be able to remember the details.

It's not dodgy at all. When you take it out you say whether you want to pay the interest or whether you want it to roll up. If you don't want to pay £x00 a month because you're retired, you don't have to. This grandad decided he wanted to take the "free money" option.

The benefits are you can have as much equity out of your house as you like and not pay a penny back yourself. A lot of people give it to their kids as a house deposit.

It's actually a really good idea so release some equity in your home to spend in your retirement. It is no different from taking out a mortgage when you haven't got enough money to pay for your home.

The problem is people don't understand them and think someone is just going to give them say 20% of their home's value and sit around and wait for it back when the person dies some years later.

If you take out a 25 year mortgage now, but get fixed rates every five years at an average of 4% you are quite happy paying that 4% interest yes?

This is just the same, the company lends you $100K and charges you 4% interest on that money, if you die in 10 years you only pay 10 years worth of the 4% but if you live for 30 years you pay 30 years of 4%. Once you die they get their original $100K back from the value of your home.

If you don't pay the 4% every month it gets added to your original loan.

Nothing at all wrong with it, how can it be illegal, it is just the same as any other lender apart from the term not being fixed because they don't know how long someone will live.

Given that he took equity some 20 years ago, then he will have been paying the equivalent of compound interest on that release of equity all this time and so it can easily be four times the original amount.

The property will have gone up in value during that time, so as a percentage of the value of the house, the debt might not have gone up so much.

Definitely worth working out exactly what was the original equity paid to him, and the interest rate. If the value of the property has gone up a lot, and the proportion that he enjoyed for a car and holidays several years ago is similar to the current debt, then this idea may be some comfort to him now.

Yes, but the suggestion was for now so that OP can interfere in his equity release.

Yes, the POA would be a good idea even if none of this was happening.

I'm not sure, at first I wondered if the lenders had more responsibility to check in with customers and check the product was still suitable

Presumably they did do that with the letters- but he put them aside you said and did not read them?

They probably have to put it in a letter for legal reasons so it's written down and there is evidence they have communicated with their customers.

I mean, what more can they do?

What's the actual problem with it as long as done legally and ethically? An old person wants some money so they borrow on the house. They don't need to be able to pay it back because they don't have too many years left. I don't get what's wrong with it in principle unless you're an entitled child moaning about an inheritance (not that OP is).

Because it may come in useful in the future. It’s much harder to get POA when someone is not of sound mind.

Why should she get Power of Attorney over a man who is sound of mind when it's for now and not for future use?

So a lifetime mortgage is something you can take out to get some equity release, then it just sits there accumulating interest and never being paid back until the owner of the house dies (or sells?) at which point the by now huge sum is paid for out of the estate? I'd never heard of this before and they sound incredibly dodgy! How is this legal? And what are the actual benefits of signing up for one - surely the person taking it out must be aware that they're basically signing away any chance of their kids owning their house, unless they're rich, in which case they wouldn't need a lifetime mortgage in the first place...?

I think this is the issue, loans taken out a long time ago which seem a good idea at the time and not fully understanding how they work, they could be going for many years with interest added.

all the more reason to remember though surely - signing your entire house over in your 50s?!