Can we reduce the high interest rate we’re paying on our equity release loan?

Will Hale
13 November 2018

Q

I wonder if you can help me and my 91-year-old mother? In 2000 and again in 2005, my father took out equity release loans on the family home. The home is held in trust for my brother and I. Sadly, my father died in 2007 and my mother became the sole trustee.

The problem is the two loans have a 6% and 8% compound interest rate respectively. Given that my mother has continued to occupy the house for almost 20 years, their balances have grown to a combined debt of around £250,000. The property is now worth around £430,000 so we are still in positive equity, but the annual payments are around £10,000 and growing.

Is there any way we can refinance these loans on to a lower interest rate? Even if we have to pay an early repayment penalty, wouldn’t it still be worthwhile?

From
PS/Shoreham-by-Sea

A

Refinancing an equity release loan is generally possible, but it will depend on the loan to value and any potential early repayment charges as to whether it makes financial sense.

Some lenders are currently offering rates below 4%, so this would certainly make a difference to the amount of compound interest that is accruing on the loan. Recently, we have also seen products that allow you to repay the interest on an ongoing basis, so this is not added to the loan and compounded, which might be an option for someone with a guaranteed regular income.

I suspect rather than taking a second loan, your parents took a further advance. This will simplify matters as you will only need to deal with one existing lender rather than two when you refinance.

However, this case is made slightly more complex by the fact that the home is held in trust but, depending on how this has been set up, this is not insurmountable. Your next step should be to collate all the information on the outstanding loans, as well as the trust, and speak to a specialist equity release adviser who will understand the complexities and can search the whole market to find the best option.