February 1, 2011 at 8:56 pm #10920Financial CompanionParticipant
I’ve had quite a few questions lately about this topic so I thought it would be helpful to clarify a few points about it.
Equity release mortgages for over 60’s arrived in Ireland a few years ago. There used to be a variety of types including the ones that "bought" a percentage of the home and therefore owned part of it but thankfully these type died off. They are not suitable for everyone and there are consequences that are important to consider. But for some, they are ideal. One example I saw of it being appropriate was a couple living in a house, that at the time was worth about €500,000, but apart from their basic state pension, they had no other income. The heating was broken, their alarm was broken, they could not affort to fix or repair their car and therefore hardly got to go and visit family and they had not had a holiday in a few years. They release €80,000, and transformed their quality of life in retirement, rather than continue to live the way they were and then just leave it all when they passed away.
The way it is done now, is more like a traditional mortgage but there is no obligagtion to make any regular repayments. It is a lot more user friendly now and someone can choose to pay either regular payments, irregular, lumpsum all without penalty or not pay anything at all. The loan becomes repayable in the event of either death (of the last of a couple if it is a couple) or permanently moving away from the home or deciding to sell the home. The way it works is like this, you can borrow up to 15% of the value of the house from age 60 (if a couple, the youngest age is used) or 1% extra for each year older. e.g. a 65 yr old could borrow 20%, 70 yr old could borrow 25% etc. Interest is added on each year to the loan amount (currently 4.5%) and there is also a guarantee of no negative equity, so if the person lived a very long life, the loan is neve able to outgrow the house value. The costs at the start are similar to a traditional mortgage including legal fees, but there is no need for life cover to be taken out.
The amount borrowed can be used for any purpose but it is advised to discuss with family members. Most common uses are helping sons and daughters with finances, multiple holidays, purchasing mobile homes (often in warmer climates!) or improving the home. The points to consider are, it will reduce the value of the estate that is left behind after death, depending on what is done with the lump sum, it could impact on entitlements to certain means-tested benefits, and there is an obligation to maintain building insurance on the property (which would be normal anyway to do). There are often a variety of questions that people have in this area so feel free to ask here or PM me if it is a personal question.
- You must be logged in to reply to this topic.