As you get older, there may come a point when you are no longer able to live unassisted in your home. While it may not be a pleasant thought, moving into long-term care could be key to enjoying the rest of your retirement.
Of course, at this time, your health should be your main concern. But if you’ve released equity from your property, you will also need to think about how long-term care could affect your plan.
To find out more about you and your family’s financial responsibilities in the event of long-term care, continue reading.
Why type of equity release plan do you have?
Ultimately, what happens to your equity release scheme in long-term care depends on the type of plan you have.
Individual (or single) plans
Individual equity release plans are those that have only been agreed by a single homeowner – who is the only named person on the property deeds. If that person subsequently moves into long-term care, the agreement ends and the final balance – made of the total amount borrowed and any accrued interest - must be repaid.
A joint plan works differently and is an agreement that has been co-signed by both parties that are on the deeds of the property. This means that if one homeowner moves into care, the plan does not come to an end.
Instead, the other named person(s) on the agreement can continue living in the property until they die or move into care themselves. In these instances, the equity release provider still needs to be notified that the individual leaving the property no longer lives there.
Alternatively, if you receive care but remain in your home, you can rest assured that your equity release plan will continue unaffected. In fact, you could even use your equity release funds (or raise additional funds if your circumstances permit) to help pay for assisted living essentials, such as a stair lift or a walk-in shower.
What is the process?
In all instances, your equity release scheme will end when the final occupant moves into long-term care or passes away.
When the last one of you leaves the property, it is the responsibility of either your executors or whoever is dealing with your affairs to sell the property – and the lender typically gives the executor 12 months in which to do this.
They will be able to choose how and with which estate agent the property is marketed and also agree the price that the property is marketed for. When selling, it is also the executors responsibility to agree the sale price and get the best price for the property.
It’s in everyone interest to sell the property sooner rather than later as interest will continue to accumulate on your equity release plan until it is repaid.
If you have any tenants, lodgers or family members etc. living in the property, they will also have to move out when the property is sold.
The lender will only need to be involved if the value of the property is less than the amount outstanding on the lifetime mortgage. If the ‘no negative equity guarantee’ comes into play, the lender will want to make sure the property is being sold for a reasonable price.
If, after the 12-month period, the mortgage has not been paid back, the case will be referred to the lender for review. In some instances, this could result in the property being sold by the lender, although this is extremely unusual and is the last resort.
Will I leave my family in debt?
While the responsibility to settle the loan may fall to on the family, they will not be saddled with debt that affects their own assets. At least, not with any of the lifetime mortgages that Equity Release Supermarket advise on.
That is because we are members of the Equity Release Council and adhere to a strict code of practices and codes. One of which states that each lender that is a member of the Council must provide a ‘no negative equity guarantee’ across all the plans they offer. This means that beneficiaries will never have to repay more than the property’s value – even if that value drops in the future.
Do my family have to sell my home to cover the debt?
Many families find that selling the house to cover the repayment of the lifetime mortgage is the simplest option available. After all, it reduces the risk to their personal finances and could still result in a share of inheritance from any remaining proceeds.
If, however, your family wish to retain ownership of your home, then they can find other ways to settle the mortgage with their own money. The debt (plus the subsequent interest) will need to be paid in full within the stated 12-month period.
Not all equity release plans are equipped with this option though. A home reversion plan, the alternative to a lifetime mortgage, involves you selling a portion, or all, your property instead of taking out a loan against it. The homeowner will receive a cash lump sum and can remain in the property rent-free until the last survivor dies or moves into long-term care. In this case, while you will avoid the accumulating interest and help protect your inheritance, ownership of the property will automatically revert to the lender when you move into long-term care. The house is then sold with proceeds being split in accordance with the percentages originally agreed with the lender. Any money left will then be shared amongst the homeowner’s beneficiaries as an inheritance.
If you have any questions about equity release, get in touch with the Equity Release Supermarket team on Freephone 0800 802 1051 or email us at [email protected] .