What Happens to My Equity Release Plan if I Go Into Long-Term Care?

Entering long-term care may trigger repayment of the equity release plan, depending on the terms agreed upon, as the property may no longer be your primary residence.
  • Last Updated: 14 May 2024
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Francis Hui
Can I Fund Long-Term Care With Equity Release? What Happens to My Plan When I Go Into Care? Will My Family Be Liable for Any Debt? Read On…
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Key Takeaways…

  • Moving into long-term care does not alter your equity release plan, and access to funds continues under the existing terms, though adjustments may apply based on your residency status.
  • The equity release arrangement typically stays in place, but the requirement to live in your home could influence the continuity of the plan.
  • If long-term care necessitates a permanent move from your home, this could trigger and activate changes to your equity release terms — likely as stipulated in your plan.

You may have reached the age for equity release where you are 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.

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    Equity Release After Care Costs

    What Is Home Equity Release?

    Equity release, intended for those 55 and over, enables homeowners to monetise 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, whilst maintaining your living space.

    What Happens to My Equity Release If I Need Long-Term Care?

    If you require long-term care and have an equity release plan, the situation surrounding your property may alter depending on your care needs.

    Depending on the plan, you may be able to move into a care home, with the property sold and the mortgage repaid from the sale proceeds.

    Remember, the equity release provider will typically reclaim the loan upon your house sale, which may leave less inheritance for your beneficiaries.

    Alternatively, if you opt for at-home care, you can continue to live in your property.

    Some equity release plans, especially lifetime mortgages, are very flexible and allow you to continue living at home whilst receiving care.

    However, you must keep in mind that the equity release loan will continue to accumulate interest which could significantly reduce the value of your estate over time.

    It is crucial to seek professional advice to understand all implications before making a decision.

    Will It Matter What Type of Equity Release Plan I Have?

    Yes, it will matter what type of equity release plan you have, as lifetime mortgages and home reversion plans are structured differently.

    Lifetime mortgage

    If you have 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.

    Home reversion… 

    A home reversion plan works differently, because you have 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 pass away 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.

    In other words, ensure they are authorised and regulated in the UK by the FCA.

    Single vs. Joint Equity Release: What Is 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 have entered a care facility.

    Single equity release plan

    With a single equity release plan, if you are the sole signatory on the loan and you are the one going into care, your partner or spouse and any other people living in the house will need to move out when the property is 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 need 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 are 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 is 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 will not apply in this case, as the plan will have come to it’s 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 the costs and ensure the lender is repaid.

    Your lender will normally only get involved if the property is taking too long to sell.

    How Long Will It Take to Settle My Plan?

    How long it will 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 depends on what your equity release plan stipulates, but lenders typically allow between six and twelve 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 is repaid, so it is 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 is sold and the mortgage is paid, any remaining money is yours to use however you wish. 

    Common Questions

    What Happens to Equity Release After Entering Long-Term Care?

    Can I Still Access Equity Release If I Need Long-Term Care?

    Does Long-Term Care Affect the Terms of My Equity Release?

    How Does Long-Term Care Impact the Equity Release Process?

    Are There Any Changes To Equity Release After Starting Long-Term Care?

    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 Need 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 Is the No Negative Equity Guarantee?

    In Conclusion

    Understanding the implications of entering long-term care on your equity release plan is essential for homeowners considering this financial option. 

    Whilst transitioning into long-term care can be a stressful process, it is 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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