You no doubt like me have heard the smooth- talking radio adverts or seen newspaper adverts offering Life Loan to applicants over 60, whereby you can borrow money against your home for whatever purpose you require and you don’t have to make any repayments during your lifetime. These may seem attractive to persons over 60 who may not have a lot of savings and may wish to buy a car, take a cruise, carry out home improvements, gift money to their children etc., however what the adverts don’t tell you is how they can have a serious impact on your future nursing home care funding if required as well as eroding your estate.
The providers of Life loans don’t seek any repayments during the person’s lifetime but they make their money by charging high interest rates which are charged using compound interest. Consequently, a relatively small loan can grow to a substantial sum owing overtime often virtually eliminating the equity in the home. It is mine and many other professionals I speak to opinion that the persons taking out these loans do not quite understand the implications that taking out these loans will have.
Based on the level of advertising and the associated costs, they are obviously being taken out by a high number of people which is very concerning. I spoke at length on the Joe Duffy show on this subject last year where hearing peoples experience of these loans was very distressing.
Personally, speaking I believe they should be banned by the financial regulator as I feel they are preying on older persons vulnerabilities and are a form of Elder Abuse. If you have older parents or if you hear of anyone considering taking out one of these loans, I would urge you to tell them not to.
While applicants may be told to get legal advice as part of the application process, I actually don’t believe the Solicitors know the full implications of taking out such loans on the applicant’s future and their estates. Solicitors could be setting themselves up for professional negligence claims in the future by the applicants or their families and as we all know ignorance will not be a sufficient defense and the fee earned advising on the loan could be the cause of serious damage to the Solicitor firm and their reputation.
I have listed below the potential implications of Life Loans and in particular how they will impact long term care funding under the Fair Deal.
- • Most Life Time loans will have accumulated to hundreds of thousands over the applicants remaining life. This will seriously reduce or wipe out the equity in the property.
- • The HSE when assessing an applicant for the Fair Deal assets will not give any discount on the property valuation for a life loan. A simple example a house worth €500,000 with a Life Loan balance of €300,000 will be assessed @ €500,000 @7.5% or 3.75% depending whether the applicant is single or part of a couple. Thus, the applicant will have to pay an asset contribution of €37,500 or €18,750 and the calculation will not be based on the net equity in the house of €200,000.
- • The Applicant will not be allowed by the HSE to take out the Nursing Home loan to pay their Property Asset contribution as the Life Loan provider will have a first charge on the property and the equity will continue to be eroded by the interest charged every day.
- • The applicant most likely took out the Life loan as they may not have had much savings. With the Life Loan most likely spent how is this applicant requiring long term care now going to fund the €37,500 or €18,750 required under the Fair Deal for the asset contribution.
- • With Life Loan you pay interest on the sum borrowed plus the accumulating interest (compound interest) which is very expensive. Thus, a loan of €100,000 can accumulate to €400,000 over a 15-to-20-year period.
- • Often the only solution for someone with a Life loan to fund their care is to sell their home, repay the Life Loan and only at that stage will the HSE assess their contribution on the net proceeds if any. If there is a partner still living in the home, where are they going to live?
- • If the person requiring care has lost their capacity and does not have an Enduring Power of Attorney in place, they will not be able to sign the sales documentation. Thus, the house cannot be sold. How will the care be funded?
- • From my experience it is often the children of someone who requires care that discovers the existence of the Life Loan. Currently we are mainly dealing with cases where Life Loans were taken out between 2000 and 2009. Their parents having received the annual statements showing the accumulated debt rising each year regret their decision are very stressed about it and are too embarrassed to tell their children. The children are very angry as they are left with a serious financial issue to sort out.
- • I envisage in the future when the current Life Loan applicants starts to need care that their children will question the advice their parents got before they took out the loan. If a Solicitor was involved, the children’s anger could see them or their parent’s estate suing the solicitor for professional negligence for failing to advise their parents of the implication of taking out the loan.
Prevention is often the best cure. I suggest if you have older parents that you warn them about these Life Loans and ask them are they okay for money. If necessary and if you can provide them with financial assistance, or get them to borrow money from their credit union to pay for the item they may need or wish to buy. Many older persons only have the state pension and their home with minimal savings. They are often too proud to ask for help. This makes them easy prey to the Life Loan smooth talking sales teams.
I would appreciate if you would like and share this article and help protect our potentially vulnerable older generation from organization selling these financial products.</p.
If you need advice on Life Loans or the Fair Deal and long-term care, please contact me at email@example.com or phone Tom Murray @ 086 601 5042 or visit our website www.fairdealadvice.ie