Do I Have to Sell My Home to Pay for Care?
People over the age of 55 can get money for care fees by taking money out of their property. They can do this by either having a home reversion or a getting a lifetime mortgage.
Many pensioners choose to become equity release customers in order to fund their care, but some people spend their loan on another things, e.g., holidays, home renovations, financial gifts for loved ones, or repaying a mortgage (1).
Do I Have to Sell My Home to Pay for Care If I Have a Lifetime Mortgage?
If you have taken out a lifetime mortgage, you will remain an equity release consumer until you pass away or enter permanent care.
This is something you will have been informed of from the very start, as equity release providers like to make it clear that you are expected to stick with the scheme long term.
If you want to go into permanent care after taking out a lifetime mortgage, you will have to sell your home in order to come out of the equity release scheme. This will not be an issue for you if you are planning on staying in care forever, but it could be an issue in terms of inheritance.
It goes without saying that your family will not be able to inherit your home if you sell it to pay for care.
The amount of money your family would be entitled to when you die depends on how much equity you have taken out, how valuable your home is, and how much you spent on care home fees.
Whatever money you have left after being in care will go to your loved ones, as the equity release fees would have already been handled when you went into care.
Please call our 24-Hour Helpline: 0330 058 1579
Do I Have to Sell My Home to Pay for Care If I Have a Home Reversion?
You do have to sell your home to fund long-term care if you have a home reversion.
However, the process is different as you will not own all of your home (you will have sold most of it to an equity release provider, and kept a share).
This means that you will most likely raise less money from the sale of your property, so it is advisable to take out a lifetime mortgage if you are planning on using it to fund care costs.
Is There a Way to Keep My Home When I Go Into Care?
Firstly, you could look into alternatives of care homes, which would allow you to receive 24-hour care without selling your home.
For example, if you hired a live-in carer, you would be able to keep your lifetime mortgage or home reversion until you pass away.
Some people even ask their family members to move in to care for them, which can be a more affordable option than getting a professional carer.
If you want to do this, keep in mind that not every equity release provider allows this. You would need to check the requirements of your provider, as well as the rules of your specific equity release plan, e.g., lump sum, second home, or drawdown.
What’s more, this is expensive care compared to what care home residents have to pay.
Secondly, if you do not currently need long-term care, you could look into getting temporary care, which would not require you to sell your equity release property.
However, you should only do this if you are well enough to not have to pay for permanent care, otherwise it could lead to serious illness.
You would also need to consider how your health may be in a few years, as it is possible that you will need long-term health care further down the line.
Finally, you could take out a buy to let lifetime mortgage, as this equity release product allows you to keep your home, and gain a rental income, even when you are in permanent care.
People with this mortgage rent their home out to others, rather than living in it, so they can continue to earn an extra income when they are in a care home, which will help to fund their care.
Please call our 24-Hour Helpline: 0330 058 1579
FAQs About Equity Release and Care
Below, we provide answers to common questions around the topic of equity release and care:
1. Why should I consider releasing equity to fund care costs?
If you could not afford care home fees right now, and you do not have much money saved for retirement, releasing equity could open up this opportunity to you.
It would allow you to enjoy high-quality care without getting into debt, as the equity release loan would be paid off through the sale of your home.
You may want to wait and try to take out a traditional loan for care, but this is not advisable. It will be very difficult for you to take out a loan as you get older, so there is no guarantee that you will be eligible to borrow money.
These funds would also have to be repaid soon after you borrow them, and you may not have a reliable income to fund this when you are in permanent care.
2. Why should I be wary of using my equity release loan to fund care costs?
Taking out equity for residential care funds is certainly not something everyone should do. The money you borrow will accrue a large amount of interest, and this could reduce the inheritance that will be passed onto your family when you die.
However, there are ways to keep the interest low, such as getting a drawdown mortgage and only releasing money when you need it (i.e., when you are ready to go into care).
What’s more, you won’t be in debt if the interest is high, as your home will be used to pay this off. Make sure you have a no negative equity guarantee to ensure selling your property is enough to pay off the loan, regardless of whether the property has dropped in value.
If you are unsure whether you would be better off releasing equity or sticking to your regular income and/or savings, we would suggest getting a financial assessment by someone who is trained in equity release.
Our team fit this criteria, and they are available to help you any time from 8am-8pm Monday to Friday.
3. Can I arrange the sale of my home without involving the equity release provider?
No, you cannot arrange a property sale independently. Once you become an equity release consumer, you accept that any decisions about your home have to be approved by the equity release company.
One of the rules you have to follow is to not sell your home, whether it’s to fund future care, or for any other reason.
If you have a home reversion, you are no longer the homeowner, so you have no right to sell your home. You could ask to sell your share, and then the equity release provider would be in charge of selling the property.
With a lifetime mortgage, though you maintain ownership of property, you have taken out a loan that is secured against your property, so your property can only be sold to cover the cost of the loan, and nothing else.
As soon as you decide that you will be paying for care by selling your home, you need to get in touch with your equity release provider and inform them of your decision.
They will let you know how long the process could take, and how much money you could expect to have by the end of it.
It is usually not a lengthy process, but just in case, we advise you to register your interest early, in case it ends up being a complex process.
If you are not happy with their predictions, they may be able to point you in the direction of different equity release mortgages that could be more profitable for you.
They could also allow you to have a live-in carer, which would allow you to access later-life care without giving up on the equity release scheme.
Please call our 24-Hour Helpline: 0330 058 1579
4. What happens to my inheritance when I go into care?
When you go into permanent residential care as an equity release customer, your home will be sold, and the money raised will first go to the equity release provider, and then to you.
Your family will not inherit this money yet, as it is needed for you to be able to go into permanent care.
When you pass away, your family will inherit anything you have left, including savings and pension funds. If most of your money has gone to care home fees, minimal funds will be passed on to your family.
This is something to consider when you are weighing up equity release. Are you desperate for retirement income, and prioritising care would be the best way to secure a stable retirement?
Or could you fund the cost of care fees in another way, and therefore have more money to pass onto your loved ones? Get financial advice before making a final decision, otherwise you may end up
5. What happens if my partner is still alive and I need to go into care?
If your partner is still alive, and they are on your equity release plan with you, your home will not be sold. There is a promise that both equity release consumers are allowed to live in their property until they go into care or pass away, so if one of you is still wanting to stay at home, this is allowed.
However, you will need to figure out how to fund your care costs without selling your home. If you have saved up your equity release funds, you can use them to pay for later-life care.
One way to do this is to take out a lump sum lifetime mortgage, and keep it in your bank until you are ready to go into a care home. Another way is to get a drawdown mortgage, keep the funds in the cash reserve, and withdraw them when you are ready.
Often, people release enough equity to be able to spend a good amount of it, and still have a healthy amount saved for care payments.
We encourage you to plan your spending with a financial adviser to ensure you do not end up spending your loan on other things, and therefore struggle to pay for care.
Please call our 24-Hour Helpline: 0330 058 1579
6. Can I get help with the cost of care if I am an equity release customer?
Yes, you can still get help with care home costs if you are an equity release consumer. However, it is less likely that you will qualify for help, as equity release customers tend to have more money in their bank. The funding is based on means-tested support.
Pensioners are entitled to local council funding if their capital is below £23,250. If the remainder of your equity release loan is higher than this, you will have to fund all of your 24-hour nursing care independently.
If it is lower, you can get help, but the amount of help varies according to how much money you have. You will be able to have a financial assessment before going into care that will reveal your entitlement for financial aid.
Some people get involved with equity release to lower their capital, and therefore qualify for care home funding from the local council.
This can sometimes work, but our expert advice is to never do this. You will end up paying the full amount if the local council suspects you of releasing equity for this sole purpose (which is known as deliberate deprivation).
Contact Equity Release Warehouse to Find Out More
We know that it can be tricky to work out the best way to fund care costs, so we would be happy to chat about this in more detail on a phone call.
You can reach out to us for financial advice and equity release advice on 0330 058 1579, or by filling out our contact form.
If you are in the early stages of considering equity release, we encourage you to consider its impact on costs of care, both in a positive and negative way. Our team can help you to weigh up the pros and cons of taking out equity for care costs, taking into account your personal circumstances.
Perhaps you released equity a long time ago, and you are now regretting your decision as it is going to negatively affect your care.
We can help you with this if you reach out to us. Sometimes, you can make changes to your equity release plan or provider, meaning you will end up in a better position to fund your care.
Other times, you cannot make changes, but we can give you professional advice on alternative arrangements for extra care, as well as budgeting tips that are applicable to the cost-of-living crisis.
Please call our 24-Hour Helpline: 0330 058 1579
References
[1] Equity release https://nationaldebtline.org/fact-sheet-library/equity-release-ew/#:~:text=Equity%20release%20can%20be%20helpful,pay%20debts%20that%20you%20owe.
