If you’re thinking about releasing equity from your home, there are many factors to consider, including what will happen to your equity release loan when you die.
When you take out a lifetime mortgage, there is no obligation to make any repayments until you go into long term care or pass away. In this article we explain how your equity release loan is repaid when you die.
What happens to your equity release loan when you die?
When you die, the executor of your estate will arrange for your home to be sold. They will use the proceeds from the sale to repay the equity release loan. If there is any equity left in the property after the loan has been repaid, those funds will go to your beneficiaries.
If you have a joint lifetime mortgage with your partner, the equity release loan is not due to be repaid until both of you have either moved into long term care or passed away.
Does your home have to be sold to pay back the equity release loan?
If you take out a home reversion plan, the lender will own a proportion of your property and so the property will have to be sold upon death.
However, if you take out a lifetime mortgage you are not obliged to sell the property if you have other funds available to repay the loan. Your beneficiaries may want to keep your home and, if possible, the executor of your estate may use other funds to repay the equity release loan.
What if your property is worth less than the amount due to be repaid?
When you take out an equity release plan it’s important to make sure that the plan is approved by the Equity Release Council. All plans that are approved by the Equity Release Council are protected by the ‘No Negative Equity Guarantee’. This means that you will never owe more than your property is worth.
If the value of your property was less than the amount due to be repaid, there would be no equity left in the property for your beneficiaries to inherit.
How quickly does the lender need to be repaid?
If you have a home reversion plan your property will need to be sold fairly quickly, usually within 4 weeks of death.
For most lifetime mortgages you typically have 12 months to repay the lender. Although some lenders allow up to 3 years.
When you first take out an equity release plan you will receive an information pack along with your plan reference number. Your lender will need to be notified of your death as soon as possible and will need the plan reference number.
It’s important to note that interest will continue to accrue on the loan until it is repaid.
Can you pay back your equity release loan before you die?
If you wish to, you can make voluntary repayments throughout your plan to reduce the amount owed when you die.
If you decide to repay the loan in full before you die, you may incur an early repayment charge. It’s important to speak to a specialist equity release adviser before deciding to repay the loan in full because it could cost you more.
If the loan is repaid after you die, there is no early repayment charge added to the loan.
If you would like to learn more about equity release, please give us a call on 0203 435 9561 or email Barry Leigh, one of our Equity Release Advisers, via email@example.com.