What happens to equity release when you die?

Equity release: what happens on death?

If you’re a homeowner aged 55+ then you might be considering equity release to boost your finances. A plan is usually intended to be a lifetime commitment, so what happens to equity release when you pass away?

In this article, we explain what happens when you pass away, including:

• What is equity release?
• How does equity release work when you die?
• Can the surviving spouse or partner stay at home?
• What happens if we both move into long-term care?
• Who is responsible for paying off equity release when someone dies?
• What happens if my home does not sell in time?
• What happens if I owe more than the value of my home?
• Can my family keep my home?
• Can I pay off my equity release plan before I die?

We hope this guide will help you understand the issues around equity release and what happens when you pass away. Our selected advisers are also available to discuss your circumstances and offer further information and advice. Just call us on 0800 096 2215 or request a call back and we’ll arrange a no-obligation appointment for you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

Please note: This article is provided for information purposes only and does not represent financial, mortgage or investment advice. If in doubt, you should seek independent financial advice.

What is equity release?

Before we go into what happens when your equity release plan ends, let’s take a minute to explain what happens when you arrange one.

An equity release plan or scheme enables you to unlock the tax-free cash from your home’s value to spend however you wish.  There are two main types of plan: a lifetime mortgage and a home reversion plan. 

Lifetime mortgages are by far the most popular type of plan, so that is the product we will be focusing on in this article. With a lifetime mortgage you’ll still own 100% of your home and you don’t have to make any mandatory monthly repayments. Instead, the loan plus any interest that rolls up each month is repaid when you pass away or move into long-term care.

If you don’t want your loan to grow in size, or you want to reduce the rate at which interest accrues, then there are some options available to you. For example, all Equity Release Council approved plans allow you to make partial repayments up to a certain amount without incurring any early repayment fees. 

Alternatively, you can arrange an interest-only equity release plan and pay off the interest in full each month so your loan never grows in value. You can switch to a standard roll-up plan at any point.

How does equity release work when you die?

As equity release is typically a lifelong commitment, you or your estate will only have to repay your loan plus interest when you pass away or move into long-term care. At that point, your lender’s customer care team will sensitively explain to your loved ones how to handle the closure of your plan. 

Ultimately with equity release, what happens on death is that your home is sold and the loan plus interest is repaid from the monies raised by the sale. Any money left over from the sale will be paid to your estate according to your wishes in your will. Your executor will typically be given up to 12 months to sell your home for a reasonable market price.

If you select any inheritance guarantees in your plan, your estate will receive at least that percentage of your home’s value. This is irrespective of how much interest may accrue on your plan. Your adviser can explain all about inheritance protection should you wish to know more.

Can the surviving spouse or partner stay at home?

You can arrange equity release in single or joint names depending on whether you live alone or with a spouse or partner. If your spouse or partner’s name is on the title deeds then your plan will be in joint names. This means that you each have the right to stay in your home for the rest of your lives or as long as you wish. 

If one of you were to pass away or move into long-term care, the other can remain at home until they pass away or move into long-term care, too. Even if the remaining spouse or partner goes on to need domiciliary care (care in the home) to continue living at home, this would not affect their entitlement to stay there. It is only if they have to permanently move out of the home that the plan will come to an end.

If your partner’s name is not on the title deeds and therefore not on your plan, they will not be able to continue living there after you pass away or move into long-term care. This may mean they have to move out of the home in order for your executors to sell it and repay your loan.

If this is a concern for you then you may be able to put their name on your title deeds during the equity release process to give them the same rights as you. This will add time and costs to your application, but is a way to provide peace of mind for your spouse or partner.

What happens if we both move into long-term care?

If you and your spouse/partner both move into long-term care then your plan will come to an end. Once the second homeowner moves into long-term care, you or your loved ones would make the arrangements for your home to be sold. You will typically be given up to 12 months to achieve a reasonable market price for your home.

Who is responsible for paying off equity release when someone dies?

The executors named in the will are responsible for paying off equity release when someone dies. However, when you pass away, your executors, next of kin or another of your beneficiaries can notify your lender of your death. Whoever makes the initial contact with your lender, there are some things that would be helpful to have to hand:

• The equity release plan reference number
• Death certificate
• Probate document

When you take out equity release you will be sent a welcome pack which contains all the information loved ones will need when you pass away. This includes your plan reference number, so be sure to put it somewhere they can easily find it.

After arranging equity release, what happens on death is that your beneficiaries or executors contact your lender to inform them of your passing. They will then be asked to provide a copy of the death certificate and the probate document. Your lender will use this document to verify who your chosen executors are, as they will be your lender’s main points of contact. 

Your lender will ask your executors how they intend to settle your equity release. When someone dies, the property will be put on the market to repay the loan. However, if your executors have other means of paying it off from your estate then they can choose how to best settle the loan. If your house is to be sold, your executors will typically be given 12 months to achieve a reasonable market price for it. 

What happens if my home does not sell in time?

If your home does not sell within the 12-month period following your death, your lender will liaise with your executors to suggest the next steps. 

As a last resort, your lender would have the right to repossess the property if it does not sell within a reasonable amount of time. To avoid reaching that point they will encourage an open dialogue with your executors to receive updates and make recommendations when necessary. 

As you can see, this 12-month period gives you some peace of mind about equity release. What happens when you die will naturally be of concern to you, but it’s reassuring to know that your loved ones won’t be rushed into selling your property.

What happens if I owe more than the value of my home?

Today’s equity release plans come with the guarantee that you will never owe more than the value of your home. This is the ‘no negative equity guarantee’ and it’s one of the standards of the Equity Release Council, the industry’s governing body. 

This means that when your home is sold and the agents’ and solicitors’ fees are paid, even if the amount left is not enough to repay your outstanding equity release loan, your estate will not be liable.

Can my family keep my home?

Sometimes family members decide to keep their loved one’s home. They may choose to live in it themselves, or perhaps use it as an investment property to provide an extra means of income.

Providing your estate has sufficient funds available to clear the outstanding balance of your plan within the given timescales, your beneficiaries may be able to keep your home.

Can I pay off my equity release plan before I die?

If you come into some money and decide you’d like to pay off your equity release loan early, you can do this. However, you may be liable for early repayment fees. These fees vary between providers and can depend on factors such as how long your plan has been in place, or how much you are repaying. 

If you are thinking about arranging a plan and may want to pay off the loan early during your lifetime, there are plans that could help you to minimise costs.

For example, you could take out an interest-only lifetime mortgage to prevent your loan from growing in size over time. Alternatively, you could select a plan that allows you to make penalty-free repayments of up to 10% every year. This could see you clear your loan in as little as ten years without incurring any early repayment fees.

If you simply want to move home after taking equity release then all plans approved by the Equity Release Council allow you to port (move) your plan to a new home, penalty-free. This is provided your new home meets your lender’s minimum requirements.

You may also want to consider ‘downsizing protection’ which many plans today offer. This enables you to sell your home and downsize anytime in the three years after your partner passes away or moves into long-term care. This penalty-free protection could allow you to pay off the equity release plan early without incurring early repayment fees.

Speak to an equity release specialist today

Now that you have more of an understanding of equity release, what happens when you die and what rights your surviving partner has, you may want to look into equity release further.

To find out which plan or provider might best suit your needs, speak to our friendly team on 0800 096 2215. They can connect you to one of our carefully selected advisers who can answer all your questions and check your eligibility for a plan. Alternatively, request a free call back here.