WWYD? Equity Release for Extension

[petuniasandpetals]

We are nearing the end of our mortgage (owe about 40k) and are both approaching 60.
I'm retired and OH works FT (self employed) . We have a lot of equity in the house but no ready cash and are toying with the idea of a much longed for kitchen/diner extension which will definitely add value to the house.
We have both worked hard: kids through uni and on their own two feet and parents taken care of.
It seems like a no brainer but am I missing something?

@Tupster

But if OP lives to 90 in the same house then how much will 30 years of compound interest be?

No that’s a shocking idea. You are no age to even consider this, as a pp said by the time you pass it is likely they will own the whole house, inc rhe additional value from the new extension.

you can take a loan or extend your mortgage but not this.

Same as it would be if they took a 30-year "interest only" mortgage out for the same amount. 30 years at 5% on a 40k loan would be about 60k in interest, plus the original 40k, 100k in total. But that's only if you choose to not pay a penny, there are many options out there where some payments are made so that doesn't happen.

But even if you do pay nothing and let it compound, in 30 years the value of the property will likely also go up significantly. I bought a two-bed flat in London 30 years ago for under £40k, that sounds laughable now. In the same way a 100k charge on a house today might sound a lot, but in 30 years, not so much. And having spent 40k on the house, it could potentially increase in value beyond the loan amount.

It's absolutely not something to do without thinking it through, but it isn't a con.

Did you mean get a second mortgage? Then yes that sounds grand. There are good rates and it might mean just extending your mortgage a few years.

Equity release does get a very negative press - Interest only normally seems to be regarded as fine though :( !

I think what you say is right, you need to either get someone in who can figure out the best deal that will cost the least or do it carefully yourself rather than get hung up on the equity release label. Most people just seem to parrot the equity release is bad line, without looking into the fine detail.

So many thanks for all the comments.
Of course we don't hate our kids!
I am retired through ill health and am registered as disabled. We have adaptions to suit my needs and could see how the house could still work as we get older.
To clarify ...I have withdrawn my teachers pension and thus have a lump sum and monthly pension.
I am not able to work at all.
My husband has very little pension.
There is a lot of value in the house ... we would need about 100k to do the extension and some other work...bathroom and new flooring throughout.
By doing a bigger kitchen our current dining room would be able to be used as a fifth bedroom, downstairs of course.
We don't want to reduce our current outgoings as we have worked hard to enjoy a comfortable although not extravagant standard of living.
As regards the release of equity I am now very conscious of your comments but will obviously look more closely.

Lots of people don't seem to understand equity release on here. It's not necessarily a bad thing just depends on individuals circumstances whether it's the right fit or not

That's quite a different slant on things.

If you are disabled and money is tight, but you don't want to downsize - then spending your money from your asset to make your house suitable for disability makes more sense. It's a shame but perhaps if it's the only way forward then that's just how it is.

Instead of thinking of the initial amount borrowed, maybe consider the eventual cost paid back to see the real cost of the renovations. I do that when thinking about purchases but in terms of income - how many hours would I have to work to afford this ...

Be careful about how it may limit any future plans to move though. It will eat through your equity.

If you are having to ask about equity release as you don’t know enough about it, means you should definitely not take out an equity release loan. There are very few people who it benefits. The equity release companies make it sound amazing citing comfortable retirements and the house sale will pay it off etc etc but it often doesn’t happen that way. A £100k loan at 5% interest over 30 years - if either you or DH lives this long, with compound interest, you’d be looking at paying back £470k. What a terrible investment.

And the interest rates are higher than that currently - 6.7% + I think. Add in compound interest on that from day one over decades ....