My grandad completely forgot he took out a lifetime mortgage

[hobbitum]

A few hours ago I didn't even know what a lifetime mortgage was and wish I didn't now!

My grandad is 90 and thought he had paid off his mortgage. He was getting annual statements that he was putting to one side and not looking at properly thinking they were just a formality.

He was informed this week a new provider was taking it over and his friend saw the letter and realised what has happened. He has made no repayments or paid off any interest for who knows how long.

My grandad doesn't remember taking this remortgage out and it now looks as if it will take his home and every penny of his when he's gone.

The more I find out the more I'm worried there is no recourse and his own awful mistake. He's devastated, completely shocked and feels a failure - I think this will seriously affect his health which is my main concern. He is of sound mind.

I don't know why I'm posting here to be honest - surely mortgage lenders should be checking in on customers like this and doing a bit more than just sending standard letters and waiting to take everything when you die? I just don't know how he could have got himself into this situation. What on Earth can I do to help?

I suggest you sit down with your grandad and draft a letter to the lenders saying you've just realised what the situation is (with the letter from the new lenders) and what would they let him know his options?Ask them if it is worth paying off some interest or capital if your grandad can do so?
If they are not helpful, if could be worth you both talking to an independent financial advisor, with all of your grandad's finances in front of you.
It is always worth talking to the lender (etc) rather than burying heads in the sand.
Good luck.

If it was a lifetime mortgage, surely he potentially doesn't have to repay anything? Some lenders, all payments are deferred. He has been given the equity and the lender owns that proportion of the house. When he no longer needs it, for whatever reason, the house is sold to pay the debt.

Reassure him that all is fine, he will be safe in his house until he dies or goes into care, and then his estate will get the balance (personally I'd be massaging the figures to make it sound like you'll get a nice little lump sum, but fair enough if you don't want to lie).

These products typically come with something called a no negative equity guarantee, which means that no more than the value of his house will be owed on his death, so it won't create any more debt for his estate.

My friend’s mum dies with one of these in place. The house was worth more than the amount outstanding but the terms included a clause that added a high figure on to the total every month it wasn’t sold after death. That was quite stressful for her. They will want their money ASAP when the time comes so you might feel rushed to sell.

If he’s living healthily into his 90s and the amount owed is higher than his estate then no point in worrying about it. They can’t do anything and there’s no point in trying to pay it off if there’s no equity left and assuming nobody in the family is desperate to keep the property. They can’t take more than he’s got when he’s gone

Of course look in to the possible miss selling though.

Why do you think he’s going to be unhappy and unhealthy? This is such a weird reaction.

Do you mean that he invested what he took out of the equity and could now use it to pay off the mortgage and more?

It's not uncommon to not understand equity release. After all, people think it's their money they have paid on their house, almost like a savings account. They don't necessarily understand it needs to be paid back plus interest.
Unsure how he has gotten away with not paying a monthly amount back though 🤔
It's an unfortunate misunderstanding I believe, I hope you can explain this to him. Of course it's a shock for anyone to think they own a house and they've presumably made some payments to this house before and find out they don't. Where did the equity money go though?!

Probably, but I do know there is a lot of disquiet about the equity release market. It may be that he should never have been sold equity release in the first place. I would definitely do some digging if I were OP.

www.telegraph.co.uk/money/property/equity-release/why-equity-release-could-next-big-misselling-scandal/

My DM has one of these types of mortgages. IIRC, you can never owe more than the value of your home. So even if you pay nothing and live for a long time, the worst that can happen is that they own the full house. There’s no extra debt, if that makes sense?

You asked if it’s worth paying now. How much is the house worth and how much does he owe? And what are his financial circumstances like? If he covers the interest every month, the debt won’t grow. If he already owes more than the house is worth it’s probably better to just let it go though.

I’m not suggesting that he should pay the mortgage to leave you an inheritance, I think it makes sense just to reassure him that you don’t need an inheritance and let it go. But if he really doesn’t want to do that, and is in a good financial position, there are options.

Do you already have a house or were you hoping to keep his house to live in?

I am Power of Attorney for a friend of mine and he has a similar mortgage, equity release taken out about 14 years ago for £20,000 and he now owes something like £150,000. He was convinced he was paying it off, but wasn't in fact paying anything. The statements came in with a list of figures for each month, but those were the figures that the mortgage was going up each month, not his payments... Anyway, I've always agreed with him that the house is still his, he has a roof over his head and there's no way that's going to change, so he's over the initial shock. The startling thing is how much the figure you owe goes up over time as that part doesn't sink in when you are sold the mortgage. It's not like a normal mortgage at all, though I don't think the house can ever be under threat until after your death. This sort of mortgage is advertised on day time television still, I notice and really it's a bit of a scam though I doubt you can get them for it.

It’s not as easy as that. There is a strong urge to leave money for children. Knowing they don’t want it won’t make that urge go away

I was once at a seminar by a social scientist (sorry, I can't remember her discipline) who was researching equity release mortgages. She'd done loads of interviews with people who'd bought the products and their adult children.

Her findings were that the children were convinced the parents didn't understand the product and had been missold. But the interviews with the parents demonstrated they understood fully.

There typically isn't a monthly repayment amount with ERMs, the loan is paid off in full from the value of the house on death. That's why the amount grows so quickly, nothing is being paid off the capital and the interest added on top. They're very risk products for the providers as well, so the interest rates tend to be quite high compared to traditional mortgages.

Unless it's a very old product though, it won't amount to more than the value of the house.

I'm totally unclear on why this would make him unhappy and unhealthy? Or what he spent the money on.

He was convinced he was paying it off, but wasn't in fact paying anything. The statements came in with a list of figures for each month, but those were the figures that the mortgage was going up each month, not his payments...
Sorry, he saw amounts on his statement and assumed they were his payments, even though he wasn’t actually making any payments??

Part of this man’s self image is about providing for his daughter. His self image has been badly dented. This will be hard to come to terms with.

Do you mind if I ask why you thought you were going to inherit the house. Houses are usually left to children, not grandchildren

Because taking the emotion out of it it is all ok. In that it won’t affect him they will wait til he dies and then take the house or the money needed. . But he will be dead so he won’t be homelesss. So practically all is fine he’s no worse off than he was previously. Emotionally and morally are different questions but elderly grandad will not be out on the street.

Do you mean that he invested what he took out of the equity and could now use it to pay off the mortgage and more?

I definitely didn't explain that right. He borrowed a relatively small amount, now gone and certainly not invested. It is the interest and repayments accrued that is now so much more debt, it's just gutting.

Easy to assume you’re doing a direct debit.

Plenty of far younger people are absolutely clueless about money. My husband listens regularly to Money Box and You and Yours on Radio 4 (I try to avoid them, it's not good for my blood pressure) and very, very often they feature someone who signed up for some scheme offering huge returns at no or minimal risk. Then surprise, surprise, it turns out there are no returns at all and enormous risk and they are amazed. You don't need to assume they've lost mental capacity. They're either very credulous or very greedy or both. Sadly, this looks like what's happened here. The OP's grandfather was offered what looked like an amazing deal and failed to grasp how it worked and the risk of ending up with nothing left after all the interest was paid. Sadly, it happens, but things could be much worse, and the OP will now have to try to reassure him that it's OK. If he needed the money for his old age, drawing on the equity was an obvious way to get it.

I used to work for a financial publisher and had to read the examiners' reports from various professional bodies. I've always remembered the example from an entry level exam for aspiring bankers testing their numeracy and basic grasp of how interest rates work. They were asked something like this:

You are at a party and your friend Geoff offers to lend you £40 tonight. You would have to repay him £50 in ten weeks' time. Is this a good deal? Calculate the APR of such an arrangement. How does it compare with the interest rate charged on current account overdrafts at your bank?

The Examiner commented that hardly any candidates could calculate the APR and a great many thought this was a perfectly good arrangement, which was a bit worrying, as they were all working in clearing banks.

It probably is gutting but it will be as per the terms and conditions he signed up to. Did he get pleasure out of the money? Perhaps get him to focus on that.

Nowadays they’re increasingly left to grandchildren because children are middle aged and well set up by the time the parent expects to die.

Well so far I haven't got that urge...my children are adults now and earning good salaries and well able to support themselves.
I'm aiming not to leave anything, to enjoy spending and have an amazing retirement, must look into lifetime mortgages they sound ideal as long as non dodgy.