Equity release is an increasingly popular financial product among homeowners aged 55 and over, providing a means to access the wealth tied up in their property without having to move out. However, one of the most common concerns among potential applicants is what happens to the equity release plan upon the homeowner’s death.
In this blog we aim to help you understand the questions you may have around equity release once a loved one has passed.
Within this article we will be touching on:
- Repayment Upon Death
- Joint Mortgages vs Individual Mortgages
- Does the Interest Stop When I pass Away?
- Home Reversion Plans
- Impact on Inheritance
- The Role of Solicitors and Financial Advisors
- Alternatives to Property Sale for Loan Repayment
Repayment Upon Death
When a homeowner who has taken out an equity release loan dies, the loan is typically repaid from the sale of the property. The responsibility of repaying the loan falls on the estate, which is managed by the executors. Generally, the property is sold, and the proceeds are used to repay the loan amount plus any accumulated interest. The timeframe for this repayment is usually within 12 months of the homeowner’s death, although this can vary depending on the terms set by the equity release provider.
Can I pay my equity release loan before I die?
In some cases, you are allowed to repay your equity release loan before you die. Many equity release plans offer flexible repayment options, allowing homeowners to make voluntary partial repayments without incurring early repayment charges. This can be a strategic way to manage the loan amount and reduce the overall interest that accumulates over time.
However, it’s important to check the specific terms and conditions of your equity release agreement, as some plans may have restrictions or fees associated with early repayment. Consulting with a financial advisor or your equity release provider can help you understand your options and any potential implications of repaying the loan early.
Joint Mortgages vs Individual Mortgages
The repayment process differs slightly for joint and individual equity release mortgages. For individual mortgages, the process is straightforward as described above. However, for joint mortgages, the situation is a bit different. If one homeowner dies, the surviving homeowner can continue to live in the property without having to repay the loan immediately. The loan repayment only becomes due upon the death of the surviving homeowner or if they move into long-term care.
If you do have any questions about these joint mortgages and what happens to your partner when you pass, then please do get in touch with us and we will be able to advise you on any questions you have, alternatively you can check out our equity explained guides to help you on any points within this article which you may be unsure on.
Does the Interest Stop When I pass away?
Interest on an equity release loan continues to accumulate after the homeowner’s death if the loan is not repaid immediately. This can significantly impact the total amount owed, as the interest compounds over time. It’s essential for beneficiaries to be aware of this, as any delay in the sale of the property or repayment of the loan will result in higher interest charges, reducing the remaining equity available for inheritance.
Home Reversion Plans
Home reversion plans differ from traditional equity release loans. In a home reversion plan, the homeowner sells between 25% and 100% of their property to the lender in exchange for a lump sum or regular payments. Upon the homeowner’s death, the lender owns the percentage of the property that was sold. If only a part of the property was sold, the remaining share is passed on to the beneficiaries. The property is usually sold, and the proceeds are distributed according to the ownership percentages.
Impact on Inheritance
Equity release plans inevitably affect the inheritance left to beneficiaries. Since the loan and accumulated interest are repaid from the property sale proceeds, the remaining equity (if any) is what the beneficiaries will inherit. The amount left will depend on several factors, including how much money was borrowed, the interest accrued, and the specific type of equity release plan chosen.
For instance, in the case of a home reversion plan, your family will receive the sales proceeds of your share of the home. This differs from a lifetime mortgage, where the entire property is usually sold to repay the loan and interest.
Another alternative is if you were sold inheritance protection within the plan. If you agreed at the start of your plan to include inheritance protection, a guaranteed portion of your property’s value will be safeguarded for your beneficiaries. Additionally, your will may specify other sources of inheritance, such as savings or investments, providing further financial support to your heirs.
It’s crucial for homeowners to discuss these implications with their family and ensure everyone understands how the equity release will impact the estate’s value.
Role of Solicitors and Financial Advisors
Solicitors and financial advisors can play a vital role in managing equity release after the homeowner’s death if this is the route your family decides to go down. They ensure the legal and financial processes are correctly followed, help with the sale of the property, and provide guidance on repaying the loan. Their expertise ensures that the repayment process is smooth and that the remaining estate is managed efficiently, which can take away any stress through this process.
Alternatives to Property Sale for Loan Repayment
While selling the property is the most common way to repay an equity release loan, there are alternatives. Beneficiaries can use other assets or funds to repay the loan if they wish to retain the property. This option might be suitable for families who want to keep the home within the family or for those who have sufficient other resources to cover the repayment.
How can Premier Equity Release Help Me With This?
Understanding how equity release works when you die is essential for making an informed decision about whether it’s the right financial product for you. By knowing the repayment process, how interest accumulates, and the impact on inheritance, you can better prepare and communicate with your loved ones about your plans. For personalised advice and to explore your options further, consult with the experts at Premier Equity Release. With many years of experience, our team is here to help you navigate the complexities of equity release and ensure you make the best decision for your financial future.
