How does Equity Release work?

Hi Guys,

Can anyone help? I'm thinking of buying a new house, and instead of getting a high mortgage I'm thinking about releasing equity on my current home, which is worth about 230K with a remaining mortgage of 26K.

A guy in the Bank told me I could release equity on my current house to the value of 204K which could be paid back when I sell my current house.

How does this work? Will I be paying interset on that 204K until I sell my own house?

Thanks in advance!

You will basically be paying a mortgage of 230K on your current home if you release the 204k and whatever extra you have to borrow for the new house.

Jupiter said:

A guy in the Bank told me I could release equity on my current house to the value of 204K which could be paid back when I sell my current house.

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Given the slow down in the market and the length of time some properties are remaining on the market, take a little time to consider this course of action. You'll be paying off a mortgage (probably interest only) of €230k (and any additional funds for the purchase of the new property) for as long as your property remains unsold.

It's a buyers market at the moment. I'd certainly try and have a sale agreed on an original property in advance of purchasing another.

Hi niceoneted,

Yeah, that's what I thought should happen, but the very nice man in the bank led me to believe that I wouldn't have to pay interest on the equity released, that I'd just have to pay it back to them when I sold the house!

I did find it hard to swallow, so asked him in a few different ways. When I asked him why the bank would do that, i.e. what benefit it would be to them, he told me they were getting interest on my current mortgage of 26K, and if I took out an additional loan to top up the equity release (which would be around 65K) then that would also be business for them.

Basically he was saying I could have the 204K equity release, and I could pay it back to them in 2/5/10 years time when I sold the house, with my mortgage staying as is, unless I needed the addtitional top-up loan. Was he talking complete rubbish?!?

J

Sounds like he hasn't a clue what he is talking about. In fairness what bank is going to give you money to use for yourself and not get anything back in return for it?

That's what I thought too niceoneted, too good to be true. I was amazed when he said it, but he confirmed it a number of times. I have since got a letter telling me that the equity release amount would in fact be added to my mortgage so interest would be payable on it, he obviously went and did his homework and cleared himself by writing out to me.

I've made another appointment with a different person on Monday, so hopefully she'll know what she's talking about!

Thanks for the reply.

J