Parents' equity release mortgage - advice needed

[Squashpocket]

I recently found out from my parents (dm 70y and df 80y) that they have a substantial equity release mortgage on their home - approx 80k, taken out sometime in the last 5 years. I believe this was to cover an interest free mortgage that came to the end of its term without a repayment vehicle in place.

I don't know anything about the terms of the equity release mortgage, but from what I understand they are generally only a good idea in certain circumstances, which don't really apply to my parents.

1. They have generous pensions which more than cover their cost of living - they are certainly not on the breadline.

1. They have family they would like to leave an inheritance to if they can

1. They have equity in another property which would clear the debt if sold, but DPs refuse to sell until they have paid off the mortgage in 2 years.

They have a history of not making good financial decisions, so I'm concerned that they haven't made the decision to take out this mortgage in full understanding of the implications.

For example, due to the age gap between my parents my DM is expecting to outlive my DF and will need to downsize and release equity from their current home - will there be any left though, or will it all have to go to the equity release company?

I'm very aware that their finances are none of my business, but equally I don't want to see my mother left without or all of their money go to a debt collector if it could have been avoided by acting now.

Does any one have any advice about what to do next, bearing in mind getting my parents to engage with me on this will be difficult...

TIA

I'm sure people more financially expert than me will come along shortly, but sorry to say they are usually not a good idea. I understand the compound interest racks up the debt really quickly, in some cases doubling it every ten years. Unless there is a case for mis-selling I think they are probably stuck with it. However I assume your mother will be able to live in the property for her lifetime. The fact that they have another property will help them, obviously. But it is a great pity that they have sacrificed the house they live in for a short term solution of repaying the interest only mortgage. I think there will be more people having this type of problem as the interest only mortgages coming due for repayment, but without the debtors having any repayment vehicle in place.

You need to check the terms of the contract as without knowing those it's impossible to advise on implications. Questions to consider might include eg: Is the 80k equity release mortgage being paid off now out of the pensions? Is it a fixed sum subject to interest or is it a proportion of the value of the property? etc etc. Best to get specialist advice I would think but you/your parents need to find the paperwork

Did they release £85000 or is the current amount owed £85000? How much is the house currently worth? Equity release is a good idea for some but from reading your post it does seem an unwise decision. Did they seek advice from a financial adviser?

Thanks all for your replies.

I haven't seen the paperwork and I don't think they would be willing to show me it, so I'm a bit stuck on finding out any more detail.

I know they aren't currently paying anything towards it. Are you able to make repayments on these types of loan or is it generally paid off on death/sale of house?

The house is worth considerably more than 80k, maybe 600k.

I'm would be prepared to bet they didn't get any professional advice. I think it was done in a panic when the interest only mortgage can to an end and they realised there was nothing to repay it in place and they were both too old to get another standard mortgage.

My limited understanding is they could end up with zero vey quickly

Can you broach it from the 'right thing for grandchildren' angle.

Maybe even write a handwritten note, brief, saying you're concerned and would a) like to talk it all through with them or b) arrange for an expert to talk it through with them

Put a line in to say this isn't about you or personal gain and above all you are keen to respect their wishes and if they don't talk to you, you will let it drop

I say because it's more unusual these days and will stand out but will equally give them a chance to read it, digest what you say and decide on their response minimising the risk of an emotional first response