What happens to equity release when you die?
In this article, we explain what happens to your equity release plan when you die and what your beneficiaries will need to do.
When you die, your equity release loan will need to be repaid, usually from the proceeds of the sale of your property. Both the equity you have released plus the interest accrued is deducted from the sale proceeds; then any remaining balance is added to your estate and distributed as per your will or in line with the law.
To begin the process, your beneficiaries will need to inform your equity release lender of the death.
Paying back equity release
Instead of monthly payments, when you release equity from your home the money borrowed is only paid back from your estate once you have died or moved into care; meaning you benefit from tax free cash with no repayments whilst you are alive.
Paying back equity release will depend on several factors such as whether the loan was in one or two names, so the following information will help you understand the process and the impact releasing money from your home could have on your family.
When is your equity release loan paid when you die?
When the last surviving homeowner dies or moves into permanent care, the equity released plus interest will need to be repaid. Most lifetime mortgage providers allow up to 12 months to repay the loan, but it is important to note that you still incur interest over this period.
How is your equity loan repaid?
Equity release loans are in most cases paid through the sale of property, although beneficiaries do have the option to keep the property and pay off the loan using their own money.
If the loan is to be repaid through a property sale, as long as your lender is a member of the Equity Release Council, you are protected by the No Negative Equity rule, which means the loan will never be more than the value of the property.
Once the property is sold and estate agents and solicitor fees paid, the loan is repaid with any remaining funds distributed to the beneficiaries. If there are insufficient funds to pay back the loan, the ‘no negative equity rule’ means your family will not be liable for the outstanding debt.
Who pays for equity release?
When the homeowner dies, the executor or beneficiaries will become the main point of contact for the lender and between them they will agree how the loan is to be repaid.
Will equity release affect my family’s inheritance?
Equity release will affect your family’s inheritance as the loan is repaid from your estate once you die or move into care. Having said that some lifetime mortgage providers do offer schemes that allow you protect a percentage of your estate ensuring some of your family’s inheritance is guaranteed.
What happens to my spouse or partner when I die with equity release?
If your equity loan is in joint names; both yours and your spouse or partners, then the debt is only repaid once the last surviving homeowner dies. This means they can continue living in the property until they either die or go into a nursing home.
If the equity loan is only in your name, your partner may be forced to leave the house therefore if there are two of you, it would be worth considering a joint equity release scheme.
Can equity release be paid for before death?
You can repay equity release early however many companies charge early repayment fees. At the end of the day releasing money this way is a long-term option, designed to last until you die. There are however schemes that let you make regular interest repayments to help reduce the overall cost.
For more information on releasing money from your property, take a look at our Equity Release 2021 Guide.