What Happens to My Equity Release Plan if I Go Into Long-Term Care?
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- Equity release can help fund long-term care, either in a facility or home-based.
- If a sole borrower enters care, the house is sold to repay the loan.
- Joint plans allow the remaining partner to stay in the home until they also require care.
- The next of kin or power of attorney handles the property sale and loan repayment.
- The No Negative Equity Guarantee ensures no debt beyond the home's sale value.
You may have reached the age for equity release where you’re considering what happens to your equity release after long-term care.
Equity release offers the advantage of being able to use the funds to pay for care, whether you reside in an assisted living facility or need home-based care.
In This Article, You Will Discover:
Extensive research has been conducted by Every Investor’s team to collect the most relevant information to help guide you through the equity release process.
The following information will help you understand equity release after long-term care.
What Is Home Equity Release?
Equity release, intended for those over 55, enables homeowners to monetize the value in their property through options like lifetime mortgages and home reversion plans.
Among these, a home equity release mortgage, commonly referred to as a lifetime mortgage, allows borrowing against your home, with repayment due when the house is sold.
This strategic choice is perfect for addressing long-term financial needs or making significant purchases in retirement.
On the other hand, home reversion involves selling a part of your home for immediate cash or an income stream, while maintaining your living space.
Equity Release: What Happens If I Go Into Care?
What happens to your equity release when you go into care comes down to whether you’re the sole borrower or whether you have a joint equity release plan with your partner or spouse.
If the plan’s in your name only and you go into long-term care, your house will normally be sold to repay the loan and any interest accrued.
Any leftover sale funds will be paid to you.
Will It Matter What Type of Equity Release Plan I Have?
Yes, it’ll matter what type of equity release plan you have, as lifetime mortgages and home reversion plans are structured differently.
If you’ve got a lifetime mortgage and go into care, the people taking care of your affairs will have up to a year (depending on what your agreement says) to sell the house to repay your mortgage and interest.
Using a lifetime mortgage can result in accumulating interest, reducing your beneficiaries' inheritance.
A home reversion plan works differently, as you’ve sold a share or the whole of your property to the lender in return for living in your home rent-free or for a nominal rent until you die or go into care.
The lender will sell your house and split the proceeds according to the shareholding.
Keep in mind that with a home reversion plan, you may not receive the full market value for your property, and you lose the potential for future property value appreciation on the sold portion.
When choosing an equity release provider, ensure they comply with the Financial Conduct Authority (FCA)1 regulations and adhere to the FCA's Principles for Business, which include conducting business with due skill, care, and diligence, and treating customers fairly.
Single vs Joint Equity Release: What’s the Difference When Entering Long-Term Care?
The difference between a single and a joint equity release plan when you go into long-term care is that with one of these types of plans, your spouse will be able to continue living in your home once you’ve entered a care facility.
Single equity release plan
With a single equity release plan, if you’re the sole signatory on the loan and you’re the one going into care, your partner or spouse and any other people living in the house will have to move out when the property’s sold.
The same applies if your partner or spouse is the individual plan holder and they go into care, in which case you and any tenants or family will have to move out.
Joint equity release plan
With a joint equity release plan, you and your partner or spouse jointly own the property and will have signed the equity release plan together.
This means that when one of you goes into long-term care, the other partner will be able to remain in your shared home until the second partner also goes into care (or passes away).
If you’re both going into care at the same time, the equity release plan will come to an end and the house will be sold.
What Happens When My Equity Release Plan Ends?
What happens when your equity release plan ends is that your next of kin, or whoever has your power of attorney2, will bear the responsibility of selling your property to repay your lifetime mortgage.
It’s crucial to inform your lender about your situation, as they need to be aware of any changes in your circumstances that may affect the equity release plan.
Early repayment penalties won’t apply in this case, as the plan will have come to its intended end.
Whoever handles your affairs will take care of the entire sales process, from appointing an estate agent to concluding the sale.
This person will also have to manage all the costs and ensure the lender’s repaid.
Your lender will normally only get involved if the property’s taking too long to sell.
How Long Will It Take to Settle My Plan?
How long it’ll take to settle your plan depends on how long it takes for your property to be sold and the lifetime mortgage to be repaid.
It all depends on what your equity release plan stipulates, but lenders typically allow between six and 12 months for a property to be sold in order for a lifetime mortgage to be repaid.
Interest on the lifetime mortgage will continue to accrue until the loan’s repaid, so it’s in the best interest of everyone involved for the property to be sold as quickly as possible.
Can I Keep Any Balance From My Property’s Sale to Use When in Long-Term Care?
Yes, you can keep the balance from your property’s sale to use when in long-term care, because once the property’s sold and the mortgage is paid, any remaining money’s yours to use however you like.
Can My Daughter Continue Living in My House if I Go Into Care?
Do Equity Release Plans Work for People Who Go Into Long-Term Care?
How Will It Affect My Equity Release Plan if I Go Into a Nursing Home or an Assisted Living Facility for Any Reason?
Will I Leave My Family in Debt With Equity Release?
Will My Property Have to Be Sold to Cover My Equity Release Debt?
Can I Use My Lifetime Mortgage to Self-Fund Long-Term Care?
Can I Use Equity Release for Dementia Care?
What’s the No Negative Equity Guarantee?
Understanding the implications of entering long-term care on your equity release plan is essential for homeowners considering this financial option.
While transitioning into long-term care can be a stressful process, it's crucial to notify your equity release provider, as this move may trigger the loan repayment process.
By seeking professional advice and carefully considering their personal circumstances, homeowners can make informed decisions regarding equity release after long-term care, ensuring their financial well-being and peace of mind.
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