Exercise Caution with Equity Release Loans

John A Sinnott Solicitors, property advice 3

Equity release loans will now be available in Ireland for the first time since the banking crash in 2008.

An equity release loan is available to homeowners over 60 years of age and involves mortgaging part of the equity in their home.  People over 60 can borrow against the value they have built up in their property without having to make monthly repayments.  Instead, interest is added to the loan balance, which grows over time.  The loan is not repayable until after the borrower dies or moves out of the property and the plan is that the sale of the house will cover the loan.

The loan product has proved controversial in this country in the past, as borrowing can lead to problems.  No repayments are made during the term of an equity release loan. Compounded interest gets added to the capital throughout the term of the loan. This means that the amount owed can double in 15 years.  In the past, many sons and daughters were horrified to find their parents’ estate hugely in debt, where the loan value exceeded the house value.

Older homeowners are often “asset-rich but cash-poor” and would not have access to traditional re-mortgage products due to their age.  An equity release loan enables older homeowners to borrow against the value of their home while still retaining 100pc ownership of it and without having to move out of it.

Whilst these loans can work for some people, caution is advised.  Anyone thinking of taking out an equity release product is strongly advised to take legal and financial advice, and perhaps consider having their children involved in the process.  Contact us for further advice.