It’s tough watching a loved one struggle with their finances and unable to afford a mortgage. With sky-high property prices and lenders demanding a substantial deposit, most people can’t afford to get on the property ladder without some kind of help.
These days it’s not uncommon for parents to help their children onto the property ladder. If you are a parent that owns a property there are several ways in which you could help.
The most obvious option is downsizing which means selling your home to move into a smaller property. You can then use the money you made from the sale of your first property to gift a lump sum to a loved one to help them financially.
There are still lots of costs to consider if you downsize. These include legal fees, agent fees, moving costs and even stamp duty. There’s also the emotional side to consider, particularly if you’re reluctant to part with the much-loved family home.
The second option is equity release. These products allow you to borrow money secured against your home. The major advantage is that you still own the property and can continue to live in it until you die or go into a care home.
But it’s important to get the right advice as some providers can charge a lot of interest which can make the loan snowball out of control. Equity release products should be considered carefully because there can be compound interest charges that apply that are typically higher than traditional mortgages.
If not managed properly, they could wipe out any value you made on your home over the years or leave little or nothing for your loved ones to inherit.
The third option is to get a retirement mortgage through Tembo Money. These products are relatively new and can help you release funds from your home. With retirement mortgages, you have to make monthly repayments on the interest and sometimes the capital (if you choose too).
You have to prove that you can afford the interest repayments. But the advantage here is that your repayments can help control any snowball effect that comes with having interest added onto an equity release loan. The interest rates are generally much lower too.
Meet Carol, in her mid-sixties, she recently approached Tembo Money for some assistance.
Carol, who is in her mid-sixties, recently approached Tembo Money for some assistance. She wanted to unlock £50,000 from her home to help her two children with deposits for their first homes. Carol had received a quote from one of the large equity release providers with an interest rate of 4.75% which would be fixed for her lifetime. Carol was fortunate to have a decent pension. She also had some savings put aside for a rainy day.
Tembo found Carol a retirement mortgage at a much cheaper rate of 1.95%. Unlike the equity release product this was a repayment mortgage so by the time Carol reached 80 it would be completely paid off. Looking at the first five years of her mortgage by opting for this product Carol would save £7,000 in interest payments compared to the equity release product that she was quoted. With this option Carol gets to remain in her home and help her children out in an affordable and tax efficient way.
More money for Carol, less money for the bank.