Can You Pay For Your In-Home Care With a Lifetime Mortgage in 2024?

Equity release can provide a cash reservoir for long-term care costs, offering peace of mind and financial security. It's a practical approach to managing healthcare expenses.
  • Last Updated: 15 May 2024
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Francis Hui
What Are the Best Equity Release Options to Pay for Care in the United Kingdom? Discover the Equity Release Options for Care Funding and the Associated Risks. Read On...
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Key Takeaways…

  • Considering equity release lets you tap into your home’s value through lump sums or regular payments, you can benefit from this by accessing immediate care funding without monthly repayments; however, consider the potential for less inheritance and higher costs.
  • Risks include negative equity, increased lifetime costs, impacts on benefit eligibility, and other long-term impacts.
  • Whether it is a good idea to use equity release to cover care expenses largely depends on individual circumstances, such as your health, age, and current financial situation.

As the UK’s population ages, an increasing number of individuals are faced with the challenge of financing long-term care needs, making equity release to pay for care a potential solution. 

With the cost of care averaging £800 per week, you will need a significant amount to self-fund care in the UK.1

Could equity release help ease the stress and anxiety of paying for care?

In This Article, You Will Discover:

    Our expert team at Every Investor has extensively researched the retirement care market, providing you with crucial information on the uses for equity release

    Here is what you need to know about using equity release to cover your care needs.

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    Financing In-Home Care with Lifetime Mortgages

    What Is Equity Release In the UK?

    Equity release is a financial option for those over 55, offering a way to convert home equity into cash without selling the property.

    It is a practical choice for additional retirement income.

    It encompasses options like lifetime mortgages, where a loan is secured against the house, and home reversion plans, where a part of the home is sold.

    Both options defer repayment, typically until the home is sold or the homeowner passes away.

    What Are the Best Equity Release Options to Pay for Care in the UK?

    Equity release can be a fantastic tool for financing care costs in the UK, providing you with access to the money locked in your property. The two most popular options are lifetime mortgages and home reversion plans.

    Lifetime mortgages allow you to borrow a portion of your property’s value, whilst home reversion involves selling a percentage of your property in return for a lump sum or regular income.

    The best choice depends on your circumstances. Lifetime mortgages are generally more flexible, offering the ability to make repayments or let the interest accrue.

    Their interest rates are also typically fixed, giving you peace of mind. On the other hand, home reversion plans could be ideal if you are not concerned about leaving an inheritance, because you are selling a share of your home’s future value.

    Always consider seeking professional advice before making a decision, as equity release has long-term implications.

    Can I Use Equity Release to Pay For Care?

    Equity release can be one method to pay for care, but it is essential to understand it’s risks, such as the potential for accruing interest and potential reductions in inheritance.

    You can access your property’s value and use it to finance your or your partner’s care needs.

    With the right unbiased advice from an equity release advisor or broker, you will be able to determine whether this form of borrowing will suit your current financial needs and future goals.

    Can Equity Release Fund Different Types of Elderly Care Options in the UK?

    Yes, equity release can serve as a means to fund different types of elderly care options in the UK, offering a financial solution for meeting various long-term care needs.

    Whether you need help at home, need to fund your partner’s care home fees, or need to make adaptations to your residence, equity release may be an option worth considering. 

    Before you consider this, you must consult an independent financial advisor or broker who can review all your financial options and help find the best solution for your needs and individual circumstances.

    A breakdown of each…

    Using Equity Release to Fund In-Home Care

    By unlocking the equity in your property, equity release can provide a reliable source of funds to pay for in-home care. 

    The released capital can be used for a wide range of care-related expenses, including:

    • Personalised care packages: In-home care services tailored to your specific needs, ensuring you receive the assistance required to maintain your independence and quality of life.
    • Specialist healthcare equipment: Equity release funds can be used to purchase or hire essential equipment, such as mobility aids, home modifications, and assistive devices.
    • Professional caregivers: Equity release can help cover the costs of hiring trained and experienced caregivers who can provide round-the-clock assistance or intermittent support, depending on your requirements.

    Using Equity Release to Pay for Care Home Fees

    Equity release could be an option to pay for care home fees provided it is a joint plan. 

    In a joint equity release plan, either you or your partner will have the option to use the equity to cover the other’s care home fees whilst retaining the right to stay in the property until the last borrower passes away or moves into long-term care.

    However, when moving into long-term care as the sole borrower on the plan, your property will be sold, and the borrowed amount, along with accrued interest, will be repaid to the equity release provider.2

    Before considering equity release to cover care home expenses, ensure you understand the long-term implications of such a financial commitment.

    If you have a joint plan and you know how much funding you may likely need, you can discuss it with your financial advisor or broker to determine whether it is a viable option. 

    Using Equity Release for Home Adaptations for Care Purposes

    Using equity release for home adaptations for care purposes is a popular equity release use.

    If you are one of the many seniors who want to retire in the comfort of your own home, you can adapt your home to accommodate your changing needs, such as installing handrails, ramps, or stairlifts to make ageing easier.

    What Are the Costs of Using Equity Release to Pay for Care?

    The costs of using equity release to pay for care will include the fees associated with setting up your equity release plan, which is typically between £1,500 and £3,000, plus compound interest.3

    These costs may vary depending on the specifics of your plan.

    Furthermore…

    You can prevent interest from compounding by making monthly voluntary repayments.

    It is important to keep in mind that the overall loan amount will still need to be repaid when the plan comes to an end.

    Is Equity Release to Pay for Care a Good Idea?

    Equity release can be a viable option to pay for care if thoroughly considered. 

    However, it is crucial to consider the pros and cons, taking personal circumstances into account before proceeding. 

    Keep in mind that equity release is not suitable for everyone, as it may affect state benefits and reduce your estate’s value. 

    Consulting an independent financial advisor will help you navigate the complexities and make the best decision for your care needs and financial security.

    Pros and Cons of Equity Release to Pay for Care

    The pros and cons of equity release to pay for care include having the financial flexibility to cover these costs, but you could reduce the value of your estate.

    A full breakdown…

    Pros of Equity Release to Pay for Care

    The pros of equity release to pay for care include no compulsory monthly repayments and the ability to receive care at home.

    More details…

    • Financial flexibility: The lump sum or regular withdrawals from equity release give you the financial freedom to cover care costs, especially if you do not have sufficient savings or wish to avoid selling your property.
    • No monthly repayments: You have the option for the loan and interest to accumulate and be repaid when you pass away or move to long-term care, which can alleviate financial burdens and help manage cash flow during the care period.
    • Remaining in your home: You can stay in your home throughout the course of the loan, therefore using equity release for at-home care or to pay for a care home for your partner or a family member.
    • Protected equity guarantee: If you opt for a plan with inheritance protection, you can set aside a portion of your estate as a guaranteed inheritance, so you do not use all your property equity on care costs.

     Cons of Equity Release to Pay for Care

    The cons of equity release to pay for care are the impact on inheritance and the chance of compound interest accruing. 

    Take a look…

    • Impact on inheritance: As the loan and accumulated interest are repaid from the sale proceeds, it can significantly reduce the amount of inheritance left to pass on to loved ones. 
    • Accruing interest: Compound interest means your equity release debt can increase rapidly over time, but you can opt for penalty-free repayments and interest repayments to counter the effects of compounding.
    • Limited access to state benefits: Your means-tested state benefits4, such as council tax support or pension credit could be impacted, so seek advice from a financial advisor or specialist to understand this consequence.
    • Costs and fees: These expenses (arrangement fees, valuation fees, and legal fees)  can vary significantly among providers, so it is crucial to compare different options and fully understand the financial implications before proceeding.

    What Equity Release Options Are There for Care Funding?

    There are a number of equity release options available for care funding, including: 

    • Lifetime mortgage drawdown plan: You can access your funds in stages by opting for an initial lump sum and then placing the balance in a drawdown facility. 
    • One-off lump sum: You receive a tax-free cash amount that can be used to fund your care needs.
    • Home reversion: Sell your home to a provider, below market value, and you can stay on the property for the rest of your life.
    • Enhanced lifetime mortgage: If you have certain health conditions or a reduced life expectancy, you may be eligible for a larger lump sum or a better interest rate, further helping with care needs.

    Alternatives to Equity Release for Paying for In-Home Care

    While equity release may be a suitable way to pay for in-home care, you must explore all your alternatives before committing to a product.

    Some inspiration…

    Local Authority Support 

    Local authorities play a vital role in providing financial assistance to individuals in need of in-home care. 

    They offer support through various programmes, including…

    • Direct payments: Allowing eligible individuals to receive cash payments from your local authority, which can be used to arrange and pay for your own care services. You will need to be assessed by social services to see if you qualify.5
    • Personal budgets: If you are eligible, your local authority allocates a specific amount and will work closely with you to determine your care requirements and create a personalised budget, which you manage yourself.6
    • Carer’s assessment: Following an assessment of the carer’s needs and determining the appropriate level of support, the local authority may offer financial assistance, respite care, or other forms of support to alleviate the caregiver’s burden.7

    NHS Continuing Healthcare 

    NHS Continuing Healthcare is a fully-funded package of care provided by the NHS for individuals with complex and ongoing healthcare needs.8

    It is available to people who have a primary health need and require significant care and support at home or in a care home. 

    The programme aims to ensure that individuals receive the necessary care without facing financial burdens.

    Self-Funding 

    Self-funding for in-home care involves using personal finances and assets to cover the cost of care services. 

    If you have the means, this option offers you more control and flexibility over your care choices.

    When you use equity release to pay for care, you are essentially self-funding your care needs by tapping into the value of your property. 

    Common Questions

    Is Equity Release Enough to Pay for a Caregiver?

    What Is the Average Cost of In-Home Care in the UK?

    Can I Use Equity Release to Pay for My Partner's Long-Term Care?

    How Much Equity Can I Release to Pay For In-Home Care?

    Does Equity Release Affect Care Home Costs?

    How Does Equity Release Work to Pay for Care?

    What are the Pros and Cons of Using Equity Release to Pay for Care?

    Can I Use Equity Release to Cover My Care Costs?

    What Are the Risks of Using Equity Release to Pay for Care?

    Is Equity Release a Good Idea to Cover Care Expenses?

    In Conclusion

    Equity release could be a potential solution for UK homeowners who require financial support to pay for care, depending on individual circumstances and preferences.

    By unlocking the value of your property, you can access the funds needed to cover care expenses or modify your home to enhance your quality of life. 

    However, it is vital to approach equity release with careful consideration and seek professional advice to make informed decisions that align with your individual circumstances. 

    By doing so, if you opt for equity release to pay for care, you can ensure a secure and comfortable future while protecting your legacy for the next generations.

    It is advisable to consult with financial experts to gain a comprehensive understanding of the equity release cost and it’s implications for your financial future.

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