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Equity Release – What Happens When You Die?

If you have read up on equity release, you will have realised that it is a loan that is only repaid when you die or go into long-term care.

However, not many websites answer the question ‘equity release what happens when you die’ in enough detail.

In this article, we hope to clear this up by discussing how each aspect of the equity release process is handled when you die, including interest, legal issues, and inheritance.

There is a difference between how the process is handled depending on whether you have taken out a joint mortgage with a partner or an individual one, so we will also explain this important difference so that readers are well-informed no matter their personal situation.

Please call our 24-Hour Helpline: 0330 058 1579

Can I Repay My Equity Release Loan Before I Die?

The majority of the time, it is not recommended to repay your loan before you pass away. Most equity release lenders will advise against this as they want you to stick with the scheme for the rest of your life.

In some cases, you will be allowed to repay early, but this will incur an early repayment fee. Many consumers decide that this isn’t worth it, so they continue to pay their loan on a regular basis rather than all at once.

Having said that, early repayment is not impossible, and financial penalties are not applied in every situation.

There are certain equity release plans that allow you to pay back the loan ahead of time, or even to pay off just the interest so that it is not accrued over time and added to the loan amount.

One example of this is a voluntary repayment loan, which involves paying back additional amounts whenever you see fit.

Not only does this reduce the overall amount you will owe when you die, but it also reduces the interest as you will be paying some of this off gradually.

If you would like to just pay off the interest so that this part of the loan isn’t as much of a burden, we recommend an interest-only scheme. With this plan, your debt will increase much more slowly as you will be tackling the interest as you go.

One huge advantage of an interest-only mortgage is that you will not be subjected to affordability or credit checks, so even if your financial history is not great, you still have the opportunity to get involved with equity release.

Please call our 24-Hour Helpline: 0330 058 1579

Does the Interest Stop When I Pass Away?

When you pass away, the plan will not end immediately, so the interest will not stop. Usually, the equity release lender will give beneficiaries a time frame to repay the loan, and this tends to be around a year.

Throughout this year, or until the loan is paid back in full, the interest will continue to accrue.

Equity Release What Happens When You Die With a Lifetime Mortgage?

With a lifetime mortgage, in the majority of cases, the sale of the property covers the costs of the loan, and as mentioned above, this is usually expected to occur within a year of the homeowner passing away.

However, if the beneficiaries happen to have another way to pay off the loan, such as savings, they are usually able to do so, and the funds from the property sale that are left over can go directly to them.

Loved ones can even choose to take out equity themselves to pay off the loan. For instance, they may get a buy-to-let mortgage and use this to pay back the provider, meaning they get to keep the house.

Please call our 24-Hour Helpline: 0330 058 1579

Equity Release What Happens When You Die With a Home Reversion?

Home reversion schemes are less flexible when it comes to the time frame of the home sale. This is because with a home reversion, you have signed away your rights as a homeowner, so the lender is entitled to sell your home and earn money from the share they bought.

Most of the time, this will be a very quick process – a matter of weeks. This means it can be stressful as everything needs to be organised before the house sale, including moving the homeowner’s possessions out of the property.

What Happens If I Move Into Long-Term Care?

If you move into a care home, the process is the same as if you pass away. You are expected to pay back the loan amount in full by a certain time, and this will be made possible through the sale of your home.

Sometimes, there are additional funds left over for the homeowner, and these could be put towards the cost of the care home.

Is the Loan Only Payable With a Property Sale?

On one hand, we want to make it clear that most people choose to pay off the loan with a property sale, as they simply do not have the extra funds to pay it off themselves.

However, it is certainly acceptable to use a different source of income to pay off the loan, or to even do a combination of the two.

This will depend on the financial situation of your loved ones (if you have passed away) or yourself (if you are in a care home).

Please call our 24-Hour Helpline: 0330 058 1579

Does the Process Change If I Moved House During the Scheme?

If you were granted permission to move house during the scheme, it is likely that your loan was transferred to another property and adapted accordingly, meaning you have remained on the equity release plan.

This means the process will be identical when you pass away, as you have already dealt with the difference in value between the two properties and your second loan would have reflected this.

For example, if your second home was more valuable, you may have been entitled to a greater loan, and this means you will owe back more when you pass away. This will have been made clear to you when you first made the decision to move house.

Please call our 24-Hour Helpline: 0330 058 1579

The Role of a Solicitor in Finalising an Equity Release Scheme

Though your family may decide against using a solicitor when you pass away, it is something we would strongly recommend.

It can be stressful and confusing for loved ones to sort out all of the documentation that is required by the equity release lender, and to ensure the loan is definitely paid back within the year.

Solicitors can take control of this entire process and relieve beneficiaries of any unnecessary stress.

Please call our 24-Hour Helpline: 0330 058 1579

How Will My Family Be Impacted When I Die: Inheritance and Financial Advice

1. Inheritance

When you pass away after taking out a lifetime mortgage, your beneficiaries will receive the remainder of the equity release funds that have not been given to the lender.

This is because you will still be the homeowner, so you are entitled to the money that remains after your debt is paid off (1).

The amount will depend on how much money you borrowed, how much you ended up spending, and various other factors such as which type of plan you were on.

With a home reversion, your family will receive the sales proceeds of your share of the home. For example, if the lender purchased 50% of your home, the proceeds from the other 50% would go to your family (2).

This changes if you have specifically requested inheritance protection, as your beneficiaries may be entitled to more money. You also may have left them money in your will from other areas such as savings.

In terms of tax, equity release funds are not liable for inheritance tax, so that is one less burden for your family to carry, and it means they have access to more of the money.

2. Financial Advice

We touched on the idea of seeking out a solicitor to help with finalising an equity release loan, but we also encourage family members to get independent financial advice to ensure they are getting everything they can out of the equity release scheme.

We recommend finding a charity that offers free advice, such as SOLLA Society of Later Life Advisers, as you have nothing to lose (3).

Step Change is another great organisation for people seeking free guidance on equity release (4).

If you are prepared to pay a fee, find an adviser who is regulated by the Financial Conduct Authority, as this is the safest way to approach equity release, whether it is for an initial consultation or a final support plan (5).

Please call our 24-Hour Helpline: 0330 058 1579

What Happens to My Partner When I Die: Joint Mortgage vs Individual Mortgage

If you have taken out a lifetime mortgage with your partner, nothing will happen to your loan until they have also passed away, and vice versa.

This means the equity release loan only comes to an end when both homeowners have passed away or moved into long-term care, so the remaining partner does not have to worry about paying back the loan while they are still living in the house.

The same can be said for a home reversion – no one will be required to evict the home as the loan will only be finalised after the last person has gone into care or passed away.

Please call our 24-Hour Helpline: 0330 058 1579

What Happens to the Equity Release Lender: Receiving Funds and Going Bust

Below, we explain what happens to the money lent upon death:

1. Receiving Funds

In terms of receiving funds, this process can only begin once the family have informed the equity release lender of the customer’s death, and they have provided proof with a death certificate.

After this, the lender will quote a time period that the loan needs to be paid by, and then the property sale will be set in motion. Receiving funds is simple, as the lender will simply take the money from the sale that they are entitled to according to the contract.

2. Going Bust

We urge you not to worry about this possibility, as it very rarely happens, and even if it does, your family will not be disadvantaged. The loan would simply be transferred to a new lender and the regulations would remain the same.

What Happens If the Value of My House is Higher or Lower Than When I Released Equity?

Some people are concerned that if the value of their home changes, they will end up owing more money on the equity loan. This is a possibility, which is why we encourage you to select a loan with a no negative equity guarantee. You should have no problems doing this as they are widely available in the UK and abroad.

A no negative equity guarantee secures your loan, ensuring you will never have to pay back more than you borrowed. Even if your property decreases in value significantly, leaving the lender with less profit, you will not be required to pay any extra.

Please call our 24-Hour Helpline: 0330 058 1579

How Can Equity Release Warehouse Help Me?

If you would like to find out more about equity release what happens when you die, please contact us on 0330 058 1579 for more information from an expert adviser. We are also available to answer any other equity release queries you have, so do not hesitate to call us between 8am-8pm any day.

Perhaps you have stumbled across this article and you don’t know the first thing about equity release. If this is the case, we want to point you to our blog on equity release jargon, as we know it can sometimes feel like learning a new language.

After this, we would recommend having a look at the different plans that are available so that you know exactly how you could benefit from equity release.

Not everyone is eligible to take out equity, so please reach out to us if you would like to find out whether you would be entitled to an equity loan. To save time, we want to inform you that you must be over 55 years old and you must own a property that is worth at least £70,000.

However, there are further details that are important to know, and we can explain these over the phone.