Releasing cash from the home

I am 80 years of age and my wife is 10 years younger. We own our house outright under joint owner- ship. We are both attached to our home where we intend to spend the rest of our lives. However, our two children, who will eventually inherit the property, live abroad. They are now happily married and appear to have settled down for good. Is there any way to capitalise on the property so that our chil- dren can receive some benefit right now when they need it most during our lifetime? Mr J.B.N., Dublin

The position in which you find yourself is increasingly common and not simply for those people whose children live abroad. Rising house prices have meant that many families are trying to help their children get on to the housing ladder and, for some, the family home is the most valuable asset upon which they can draw.

However, I am not sure that your circumstances will permit such a move. Basically there are two ways to release value from the home:

remortgage the property and use the funds to help your children, or;

a reverse mortgage, where homeowners can use the equity in their property to obtain either a lump sum, monthly payments or a line of credit.

Looking first at the question of remortgaging, two issues arise. The first and most obvious is the accessibility of income with which to pay off the mortgage. There is no point in releasing value from the home only to find you have to use it all, and more, to pay off the debt, or worse, find yourself in a position of defaulting and possibly losing the home you love. From your letter, I have no idea if there are other streams of income and what these might be, but you would want to consider any such move very carefully before proceeding.

The second issue with re-mortgaging your home at this point in your lives is that you will not be able to obtain life assurance to cover the new mortgage - at least not at anything approaching affordable rates. This means the mortgage will fall due upon one or other of the deaths of you or your wife, depending on the wording of the contract.

The alternative - a reverse mortgage - is sadly not available in the Republic as far as I can tell, although it is quite common in Britain. The principle behind the product is that homeowners can continue to live in their homes with that bit of extra cash available to stop them worrying about expenses or a diminishing lifestyle as their earning power falls. In return the institution lending the money takes a claim on some or all of the value of the property, depending on the sums involved. While the figures are obviously worked out on actuarial averages as with all life-expectancy products, it does allow couples in your situation - or indeed those with no children who wish to capitalise on the value of the home while still living in it - to do so.

The good news is that Bank of Scotland is one of the bigger institutions involved in this type of deal in Britain, which may hold out some hope of their introducing a similar package here.

I gather one of the Irish institutions looked at such a move in the past but was dissuaded at the product-testing stage when younger respondents objected on the grounds of what it might mean for their eventual inheritances.

While reverse mortgages, as with all financial products, have a cost and are of greater relevance to some people more than others, it is somewhat depressing to think that people would prefer to see the more elderly members of their family live in poorer or straitened circumstances in order to preserve an inheritance to which they have no absolute right. So much for the caring 1990s.

In any case, given your interest in providing for your children now when you believe they most need it and the fact that you have given me only limited financial details, it might well be worth your while to consult an independent financial adviser.

Post Office savings

I purchased 10th Issue Post Office Savings Certificates in August and September 1987 to the value of more than £6,500 (€8,253). I have retained the certificates and I understand there have been two extensions by the Minister for Finance of the maturity date. I am now 80 and I want to know if it is possible to apply to An Post's savings certificate section to withdraw the past 12 months interest on these certificates, leaving the certificates themselves intact for a further year? The reason I ask is that I understand the rate of interest, even on the Minister's extensions is higher than the rate of interest on other similar, but more recent, types of investment and the interest is tax- free.

I have notified An Post by registered letter of my wishes but have not got any reply so far. Mr P.O'R., Longford

The thinking behind your proposal is admirable but, unfortunately, there is no provision for such a move. You cannot simply withdraw the interest and leave the whole of your capital investment in the savings certificates intact.

What you can do, however, is notify An Post of the amount you wish to withdraw. It will then pay this amount from both capital and interest, leaving the bulk of your capital intact - bearing in mind the amount you appear to wish to withdraw would be covered by the interest on the whole sum over the last 12 months.

You are certainly correct in striving to hold on to the 10th Issue certificates for as long as possible rather than sell the lot and reinvest in a more recent issue. As you say the interest on the older certificates is considerably better even though they are well past their original maturity date and are the subject of ministerial extensions.

All that means is that the interest rate now applicable is lower than that payable during the original five-and-a-half year term of the investment. As it happens, An Post tells me your 10th Issue certificates currently attract an average interest rate of 5.5 per cent. That is a remarkably healthy return for a no-risk investment in today's low interest-rate environment. It is also considerably ahead of the average annual return of 2.74 per cent on the current issue.

Earnings per share

In relation to your recent answer on price/earnings ratios and gross yields, I just want to confirm that earnings, for the purposes of calculating the price/earnings ratio, are after-tax earnings rather than pre-tax figures. Is that so? Mr T.G., Galway

You are quite right in your assumption about the genesis of the earnings figure for the purposes of the price/earnings (p/e) ratio calculation. In working out the earnings per share of any company, you take the net profit - or after-tax profit - figure and divide it by the number of shares in the company to obtain the earnings per share figure (e.p.s).

All you then need to do to obtain the price/earnings ratio figure is divide the share price by the earnings per share figure.