Pete Matthew of Meaningfulmoney has an interesting series of videos on equity release. The one that caught my eye was this published on 24 Aug 2011. He writes,
One of the main concerns for those contemplating Equity Release is that the interest building up so fast, there’ll be no equity left in their home to leave to the kids. Here, I show that it’s really not as bad as all that by looking at some realistic examples.
He then goes through the mechanics of the hare vs. tortoise race between rolled up loan amount and house prices. He also gives examples based on an example case in which there is a house worth £200k, an ERM loan of £50k, a loan rate of 7% and an hpi of 3%, with discrete annual compounding.
His results for the Lifetime Mortgage case are shown in the following screenshot:
The key finding is that it takes an awfully long time for the house price to overtake the loan amount and push the loan into negative equity.
That might not be the whole picture, however.
