Many people choose equity release because it gives them access to tax-free cash and allows them to stay in their home until they die, without having to make monthly payments. In most circumstances, repayment of the loan happens through the sale of your home when you die or enter permanent long-term care.
As we always state in our blogs, Equity Release is not the right financial move for everyone. There may be other options available to you and your family. It is worth remembering that the administration involved for your family after you die can be quite laborious. If you couple this with grief they may be experiencing, it might be sensible to make sure they are aware of everything they will be responsible for upon your death.
If you have taken out a lifetime mortgage the executor/s of your will, in normal circumstances, will usually be given around 12 months to sell the property on the open market. The proceeds of the sale will be used to pay off the capital, interest and solicitor and estate agent fees, with the remainder going to your beneficiaries. In some cases, there might be enough money in a person’s estate to pay off the loan without having to sell the home.
All Equity Release Council-approved products come with a No Negative Equity Guarantee which means your beneficiaries will never owe more than the value of your home when you die.
What about a long lifetime mortgage?
However, if you have a long lifetime mortgage plan a large amount of interest can accrue which means there is a possibility there won’t be much left in your will after the debt has been repaid. For example, if you take out a lifetime mortgage when you are 55 and die when you are 85, 30 years of interest will have accrued. With some equity release products, you have the option to pay off some of the interest, which would mean that your beneficiaries will receive more inheritance. If you want to ensure that an inheritance is left to your loved ones, it is possible to ring-fence a portion of your property to leave to them. An adviser will be able to help you find the right product for this.
What if your partner passes away?
If the Equity Release plan has been taken out jointly with a spouse then they can remain in the property. Repayment of the loan only occurs when the second person on the deeds has died or has gone into long-term care, whichever happens, sooner. The process will then be the same as stated above. If the plan is only taken out in your name, a lender may insist that your partner or spouse moves out in order for the home to be sold. It is also possible to pay back your loan before you die. Check when you take out your plan if there is an early repayment charge or not.
What about a Home Reversion plan?
If you have chosen a Home Reversion plan it means the lender owns part, or all, of your home in exchange for giving you a lump sum of cash. When you die the property must be sold in order to pay off the loan. This can happen quite quickly and your family or friends will be required to remove all of your possessions before it is sold. It is important to talk to the executor/s of your will so they are aware of what will need to be dealt with upon your death. You should also give them the details of your plan so they have the paperwork ready for when the repayment process must start. Your loved ones may not be familiar with the Equity Release industry and you may want to advise them to speak to a financial adviser who can explain what is required.
:: Use our Equity Release Calculator to work out how much cash you could release.
It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained advisors.