Mum wants to take out Equity Release on her house

[nickytwotimes]

I'm a bit concerned about it. She downsized 3 years ago and is 68 and very fit and healthy. She wants to take £12000 against her £72000 house because she would like more of an income, but we have said that this amount will not last very long and there is no further draw down facility.

anyone else had any experience with equity release?

Be very careful. Many of these schemes have had a very bad press.

Yes. This one is pretty reasonable as far as these things go, but I just feel it is such a rip off and know she will regret it 5 years down the line.

Is there another way to try to release cash - have you spoken to an IFA??

Equity release is like having a mortgage but because there are no repayments, basically the loan amount just gets compounded at the extortionate interest rate...

It is a rip off.

What does she need £12K for?

Oh, yes, the interest is dreadful because it is compound. I am encouraging her to explore other options but she has got this into her head as a good idea and she's easily won over by an effective sales person...

She wants the £120000 to use as extra income to supplement her pension on a monthly basis, ie for trips out, holidays, etc.

oops, £12000!

Erm, equity release schemes nowadays are not like the old ones that got (and deserved) such a terrible press. They can be a very useful income releasing tool.

Dh's gran took £30,000 out of her house with Zurich I think, and when they paid her an income each month, they kept some of it back to pay the interest. Now she's dead and the house is to be sold, and the estate will repay the £30,000.

This worked for her, and as long as your Mum won't be made homeless and the debt is only repayable on her death, and the sale of her house, why not? However, 68 is young to be doing this. Could she not get a part time pastime at B and Q or Morrisons and supplement her pension as well as meet people?

Equity release schemes are much more sensible than they uised to be - they have things like a no negative equity guarantee (if the equity release provider is a SHIP member).

It's definitely worth going to an IFA, as there are a number of different scheme out there, and the small print can vary quite significantly - there are two main types of equity release, and one may be more suitable than another.

It's also worth bearing in mind that equity release CAN affect state benefits, if she is receipt of things like pension credits, using her age allowance, council tax benefit, income support and dental treatment/free glasses.

I believe some equity release providers (I think Home & Capital is one, but it may be universal to all providers) have a qualified sales force, meaning that they are obliged to tell you if the product is not the most appropriate one.

Could she get a little part-time job instead?
Seems a shame to do this as it will cost her a lot in the long run

My mum is the same age and fit and healthy and she does a couple of things for pin money - she visits an old lady in a nursing home and takes her out/does shopping for her once every week or so and she does typing for various people.

my mum and dad did this, iirc my sister sorted it out (or my brother) and it was a good scheme

they had lots of equity but wanted to keep it for us but we said, erm, we all work etc, you use it

so they did

far better to have money to spend than have it tied up in a house imo

my parents did this last year- at the time i thought it was a good idea- they paid the mortgage so why not get some of it back to enjoy their retirement- but that the scheme seemed a rip off in the share the got compared to the actual amount they received, (1/3 of 270000 and they got 30000) but as the prices are going down I think its a pretty good deal now!
I generally think go for it- I dont want them living in genteel poverty or working harder than they need when they can have the cash now.

I take it she has no mortgage on the house currently?

my MIL investigated this but for her to take out £30k it would mean upon her death her £300,000 house would be completely owned by Norwich Union

How much would a £12,000 investment return to her monthly?

It is a big con when you come to sell there was a panorama about this a few months ago and NO ONE beneffited and some lost heavily.12k will give virtually no return so pointless Could she get a lodger?

Many many thanks for all your feedback, people. Our main concern is that she regrets it in a few years time because it is a small amount. When it is gone, she would have no means of raising any more. Were she to be getting half the value of the house in return for the bank getting the house on her death, I'd say go for it, but I don't think this amount of money would last her. She has spent £24,000 in the last 3 years!
I agree about getting a part-time job, but she is not keen as it is a commitment and she likes to go to her sisters frequently (Newcastle). However as we said if she only did a couple of days a week, she could still go for the best part of a week anyway. She already does a job voluntarily and always worked in retail so she could feasibly get work.
We are a bit concerned about her genenrally, tbh, and I think this has just focussed things. She shies away from making real friendships since Dad died. She has loads of acquainteneces (sp!) but no close pals apart from her sister who is married and lives 200 miles away. I think there are some deeper issues?!

Again, many thanks for your input. I'm only on briefly tonight but will check the thread again tomorrow.

Also, I would question the house valuation of £72k. How recent is the valuation, maybe the house isn't worth that today, so £12k could be an even bigger % of the whole than she had planned.