Key Post: BOI Life Loan and Residential Reversions for older people

G

gweebarra

Guest
Looking foe some advice on the life loan product from BOI and the equivalent from AIB.

Bottom line is that my folks now own a house worth Euro 450,000 but their pensions don't add up to much, and since they have retired they have realised a drop in their disposable income.

They are considering releasing some sort of equity from the house to supplement their income. None of the siblings are able to 'buy' some of the equity from them, so the life loan from BOI might be an option.

Could someone let me know what the pitfalls are, apart from the high fixed interest rate?

Are there other options available to them?
 
Home Equity Release

Gweebarra,

Also talk to SHIP and Residential reversions Ltd. - different structure to BoI.

The BIG disadvantage of the BoI product is that intertest accumulates year on year and if your parents live to a ripe old age, there may be nothing left.

Look at the compounding effect of the interest closely.

The other two outfits offer to buy a portio of the house for a fixed sum. This at least means that there will be something left for the estate.

All three options are not ideal.

Perhaps the children could pay a monthly sum each to the parnets? This would probably work out in your favour over the long-term - given that all three options are expensive.

Rgds,

Barry
 
Re: Home Equity Release

Hi Gweebarra

I don't like any of these products. With an interest rate of around 7%, the Bank of Ireland loan is too expensive, although I understand why they have to charge such a high rate. I didn't realise that AIB had a comparable product.

The Ship and Residential Reversions plans are even worse. Most of us have no way of working out if they are good value or not. My guess is that they are priced in favour of Ship.

One huge drawback of both types of loans is that they give you a big lump of cash now, whereas you might only want a few thousand a year. There are people paying 7% on their Life Loans while depositing the money at 2%. This makes little sense.

The children should investigate the possibility of extending their own mortgages and lending the money on to their parents. This way they need to borrow only what is needed and they will pay 3% interest rather than 7%. And it's much more flexible. If the parents trade down, they will be able to pay off the loan.

Brendan
 
BoI

Brendan,

I don't agree with you when you say the SHIP and RR Ltd. products are worse than the BoI, but do agree that the kids should look to sort matters out, idealy via a covenant. If this is an option Gweebarra, you should conslt with a tax expert on the covenant issue.

The BoI product compounds the amount owed each year, with no chance to pay the interest. So if the parents live well into old age, chances are there'll be nothing in the estate.

Barry
 
Big pitfall

If your parents are on non-contributory pensions there is a possibility they will lose the pension
Non-con pensions are means-tested and therefore any savings income will be accounted for

If you parents are on non-con pensions another is sizing down (if feasible)
Stamp duty can be a very large expense, but a new property should avoid the problem
And if a profit is realised from sizing down Social Welfare will ignore cash in the bank upto €190k in the means test

Stu
 
Re: >>BOI Life Loan and Residential Reversions for older people

The first thing that popped into my head reading this was that you should look at covenants. I see Barry beat me to it.

If you and your siblings are paying tax (particularly at 42%) and your parents are not paying income tax then you are a text book case for the benefits of a covenant.

Briefly the idea is this:

You want to supplement your parents income by €1000
You give them €800
They get the other €200 by means of a Tax Rebate
and you get further tax relief of €220.
So the extra €1000 in your parents pocket only costs you €580
Your other siblings could do the same.

The OASIS info on covenants suggests the Receiver must be permanently incapacitated for Tax Relief to be available. I don't think that's the case, perhaps I'm reading it wrong.



-Rd
 
Re: >>BOI Life Loan and Residential Reversions for older people

SHIP are now doing a Lifetime Mortgagage at 6.35% APR.

In America, these are called "Reverse Mortgages" which I think is a great name.

I will get further details.

Brendan
 
Re: >>BOI Life Loan and Residential Reversions for older people

Bank Of Ireland Lifeloan is 5.5% fixed for 15 years as far as I know. Which is considerably lower than SHIP.

Barry should be aware that if house price inflation was 4% per year, then with the rolled up interest after 15 years if you extracted 30% LTV today, the rolled up balance would still be 30% LTV. There would be nothing left in about 30 years if the property market went flat today and remained there.

Also the big downside of RR and Ship was that apart from a rate in the euro (45c per € of equity transferred) means that if the persom dies early then this 55c 'payback' is a big charge.

BoI is a loan. The Variable rate option was not what custoemers wanted.

Also the issue for Non Contributory Pesnions is that with the calculations on 'means' it does allow for the loan. It would seem to me that if this was appealed to the Appeal structure and then to the Circuit Court, DSC&FA would lose on the basis that 'means' should take into account 'loans' which it doesnt at the moment. But then DSC&FA have no realistic notion of how people are coping after 65 with only a state pension. Try and live on it for a few months.

Covenant will work for 5% of your income where the recipient is over 65. Be aware that some hoors in Revenue (CORK TAXES BEING THE WORST) regularly add the levies to charge the Pensioner. You get around this by making sure Pensioner has PAYE income of any level.
 
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