Equity Release

Maxwell

I have searched threads on here, but was hoping I could get advice on my specific query.

My parents are in their retirement years and have a house worth approx 400k. They fully own the house and I suggested looking into some kind of equity release from a bank.

Basically, can the following be done?

Parents can sell a share of their house to a bank e.g. 25% for €100,000
When parents eventually die, house is sold and 25% of the value of the house is given to the bank and the other amount to the other benefactors (i.e. children)

Really looking to see if there is an option for my parents to get some money from their house value in order to use the money in their retirement.

I understand that there is the options of getting a loan from the banks based on value of the house, that isn't what I would be interested in advising my parents.

Can anyone advise?

jayok

I believe that some banks are offering "equity release" in the situation you describe to allow parents to distribute their income to their off-spring before dying. However, in this situation the bank will charge for the amount lended on an interest only basis but not collect until your folks move on. So to give more specific figures

1. €400k house , borrow €100k (or 25% of value)
2. Bank "lends" €100k but charges say 3.5% interest
3. Folks live for another 10 years (not trying to be morbid here, but we need figures to work with, I hope your parents see well into the future)
4. Bank Charges interest of 100k @ 3.5% x 10 years = €35,000
5. Banks claim on the house is now €135k
6. Sell the house (in 10 years time) for €600k, there's €465k left over

Now this ONLY works if they are comfortable in their retirement years, I don't think the bank are keen on releasing equity like this if your parents don't have enough to retire on as it is.

Alternatively, why not just take out a regular mortgage on the house?

ronbyrne2005

Maxwell wrote:

I have searched threads on here, but was hoping I could get advice on my specific query.

My parents are in their retirement years and have a house worth approx 400k. They fully own the house and I suggested looking into some kind of equity release from a bank.

Basically, can the following be done?

Parents can sell a share of their house to a bank e.g. 25% for €100,000
When parents eventually die, house is sold and 25% of the value of the house is given to the bank and the other amount to the other benefactors (i.e. children)

Really looking to see if there is an option for my parents to get some money from their house value in order to use the money in their retirement.

I understand that there is the options of getting a loan from the banks based on value of the house, that isn't what I would be interested in advising my parents.

Can anyone advise?

i woudlnt recomend equity release.the bank arent buying 25% of the house, they are in effect loaning 25% of current value and charging interest on it.if house price falls you still owe 100k plus interest ,if it rises you owe 100k plus interest plus percentage of increase.i think this is case,i read article about some couples in england who got screwed after releasing equity,they got 20% equity release when house prices were low,house prices tripled and bank were owed 20% of higher amount,couple decided to sell house to move and repay the bank as they wanted to own the whole of their newhome,they owed the bank some mad amount.also other people have lived for decades and the bank kept charging interest on equity release and eventually the bank were owed more than house was worth.i would strongly recomend doing a lot of research and maybe go to a financial advisor who arent that expensive.
if the house price falls by 25% then bank owns 33% of house.if house prices rise by 50% bank owns 37.5% of house.

why not remortgage while rates are low or move to a smaller/cheaper property and free up some equity.

jayok

jayok wrote:

Alternatively, why not just take out a regular mortgage on the house?

ronbyrne2005 wrote:

why not remortgage while rates are low or move to a smaller/cheaper property and free up some equity.

The joys of posting a long response... someone else has the same good idea!

Maxwell

jayok wrote:

I believe that some banks are offering "equity release" in the situation you describe to allow parents to distribute their income to their off-spring before dying. However, in this situation the bank will charge for the amount lended on an interest only basis but not collect until your folks move on. So to give more specific figures

1. €400k house , borrow €100k (or 25% of value)
2. Bank "lends" €100k but charges say 3.5% interest
3. Folks live for another 10 years (not trying to be morbid here, but we need figures to work with, I hope your parents see well into the future)
4. Bank Charges interest of 100k @ 3.5% x 10 years = €35,000
5. Banks claim on the house is now €135k
6. Sell the house (in 10 years time) for €600k, there's €465k left over

Now this ONLY works if they are comfortable in their retirement years, I don't think the bank are keen on releasing equity like this if your parents don't have enough to retire on as it is.

Alternatively, why not just take out a regular mortgage on the house?

Thanks very much for your detailed reply!

That sounds like the thing Im after - do you know what bank offers that?

As for a regular mortgage - they don't have one now and don't want bills to deal with, so the easiest way the better.

Maxwell

Thanks Ron and jayok

But, I really don't want to mention mortgage to them - after all they spend 20 years of their life paying one and are now retired and don't want the "burden" of one now.

Basically they aren't exactly swimming in money and want an amount of money that they can dip into for holidays etc - basically enjoy life for their remaining days and I want to help them make it happen. So the most obvious choice was (after they refused to sell and move to a smaller house) to try and release the value from the house.

Im very interested in the option given by you jayok - what bank would be best to approach for information?

Thanks again

Borzoi

This crowd do what I think you are looking for
http://www.nms.ie/ship.htm Shared home investment plan

I've looked into this briefly before for my parents - but then my brothers and sister all decide that if the folks need some readies, we'd rather buy the house share than a private company

jayok

Maxwell wrote:

what bank would be best to approach for information?

Well I know that BoI has something going at one stage, but how about approaching the bank that your folks are with at the moment?

RainyDay

Check out more details on Askaboutmoney.com - As with all mortgages, the interest rate is the key issue. I think that the BOI offering had a very punitive rate - 5.something%. Make sure they shop around for the best value. They should be very confident that they are not going to move house/trade down in the future before they take out such a loan.

lomb

if u equity release u are going to get raped. there wont be anything left in my opinion if u release 100 grand, especially if u go thru brokers

Maxwell

Borzoi wrote:

This crowd do what I think you are looking for
http://www.nms.ie/ship.htm Shared home investment plan

I've looked into this briefly before for my parents - but then my brothers and sister all decide that if the folks need some readies, we'd rather buy the house share than a private company

Thanks very much - this seems like the option I wanted to see.

Just think "mortgage" will scare my parents off and Im trying to see if they can get some money freed up so they can enjoy the rest of their lives quite comfortably.

Thanks again to all for the help!

RainyDay

Some relevant articles in yesterday's Sunday Business Post Money section on equity release - worth reading.

Maxwell

Thanks RainyDay,

Will have a good read of the articles on behalf of my parents

MartMax

talk to a financial advisor or tax consultant.

at least you paying and sure what to be dealth with.

i know one or two, they look after some independently n extraordinary wealthy people.

pm me if u think that suits u.