How does equity release work when you die?

If you are considering equity release as a means of accessing some of the tax-free cash tied up in your home, you may be wondering what happens after you pass away. Who pays back the equity release plan? How does the process work? Will your home need to be sold? There are two types of equity release plans currently available:

1. Lifetime mortgages – available for clients 55 or over
2. Home reversion schemes – available for clients aged 65 or over.

At Key, all our equity release advice relates to lifetime mortgages only - a loan secured against your home. As such, we'll use the terms equity release and lifetime mortgage interchangeably moving forwards.

In this guide, learn what happens when someone with a lifetime mortgage plan dies, and how you can prepare your finances. If you want a reminder of the basics of this topic, read our guide, 'What is equity release?', first.

What happens to my equity release plan when I die?

The executor of your estate is responsible for ensuring the remaining amount owed on your lifetime mortgage is repaid. If no partial repayments have been made this amount is made up of the funds you initially borrowed and the interest accrued during the lifespan of the mortgage.

This repayment is typically made using the proceeds from the sale of your home, which is also used to pay off any solicitors and estate agents fees. However, this doesn't always need to be the case, if enough funds are available in your estate. Any funds left over belong to the beneficiaries of your estate, as set out in your will.

Typically, the process will be as follows:

1. Your next of kin or the executor of your estate informs your equity release provider of your death, quoting your plan number (if known).
2. The provider will send a letter to your executor asking for information on how the lifetime mortgage will be paid back. If the home needs to be sold to do this, they will ask to be kept in the loop during the sale.
3. Once the house is sold or alternative funds have been found, the executor pays the remaining balance of the lifetime mortgage back to the equity release provider. The lifetime mortgage plan is then closed.

Will my partner need to repay my lifetime mortgage when I die?

No, if you have taken out a lifetime mortgage as joint applicants the remaining applicant won’t need to repay when you die. Joint lifetime mortgages work on a 'second death' basis. This means that a joint lifetime mortgage plan only needs to be repaid after both partners die or move into long term care, so you or your partner will be able to continue living in your home if one of you passes away.

The surviving partner needs to either contact the lender themselves or arrange for someone else to contact them instead. The lender will ask to see the original death certificate, which they'll then return via recorded delivery.

After this, the surviving plan holder can continue living in their home and the equity release plan will carry on as before – until they also pass away or move into full-time care.
 

What if we don't die but move into full-time care?

If just one applicant moves into full-time care, then the other can continue living in the home until they pass away or move into full-time care.

One alternative is to arrange for care in your home. This doesn't affect an equity release plan at all. In fact, many people take out equity release with the intention of using it to pay for long-term care at home.
 

How long is there to pay back equity release on death?

Typically, the executor of your estate will have 12 months to pay back the lifetime mortgage upon the last remaining applicants’ death, by selling the home on the market.

Interest will continue to accrue on the lifetime mortgage until the plan is settled in full. When the lifetime mortgage is repaid, estate agents and solicitor fees will also be paid, any remaining funds belong to your beneficiaries.
 

Will my house need to be sold to pay back my lifetime mortgage?

Typically, your home will be sold to repay the lifetime mortgage after you die. That said, if other funds are available to cover the cost of the lifetime mortgage then the executor may be able to use these instead of selling the house. These extra funds might come from elsewhere within your estate or your beneficiaries' personal savings.
 

Will there be any money left for inheritance?

Yes, if you choose a lifetime mortgage with inheritance protection, which lets you ring-fence a portion of your home's future value to be passed on to your beneficiaries when you die.

This amount will not be affected by how much interest the lifetime mortgage gains, either. However, if inheritance protection is not a feature included in your plan - a lifetime mortgage may result in limited or no property equity remaining.
 

What if my beneficiaries want to keep my property?

If the executor is able to repay the outstanding lifetime mortgage from another source, then your beneficiaries will be able to inherit your property without incurring Stamp Duty Land Tax (SDLT).

If there aren't enough funds to repay the lifetime mortgage from your estate as is and your beneficiaries wish to keep the property, they may be able to pay money into the estate in order to clear the debt. Alternatively, they may be able to purchase your property from the estate, using any financial means they have available. Bear in mind that, in either of these scenarios, they could need to pay SDLT.

What happens if house prices fall?

Plans which meet the Equity Release Council standards come with a 'no negative equity guarantee'.

The no negative equity guarantee means you'll never owe more than your home's future value, so any debt accrued through equity release can't be passed on to your loved ones. However, a lifetime mortgage may leave limited or no equity in your property. It will reduce your financial options in the future.
 

Can equity release be repaid before death?

With a lifetime mortgage there is no need to make monthly repayments. The loan and roll-up interest is repaid when the plan comes to an end – typically when you or the last remaining applicant pass away or move into long-term care.

That being said, you can choose to make payments if you wish. Some plans allow partial or interest-only payments without early repayment charges, subject to criteria. This can lower your balance or prevent it from growing, giving you control over your interest costs.

Equity release isn't designed to be repaid early therefore if you want to repay the whole amount, there may be early repayment charges. Make sure to get in touch with your provider before you commit, so that you can understand these charges better. Partial repayments over a certain threshold may also incur early repayment charges.

All our equity release advice relates to lifetime mortgages - a loan secured against your home. Home reversion plans are offered by some other providers. With this plan, you sell all or part of your property to a reversion company for less than its market value in exchange for a cash lump sum, with no interest to pay on the money released, and no monthly payments to make.
 

How can Key Equity Release help?

Equity release can be a useful source of funding during retirement but it isn’t suitable for everyone and its important you understand all of the alternative options on offer and how they will impact your finances and your estate, to find the most suitable option for your circumstances.

If you have more questions about what happens to equity release when someone dies or any other topic relating to equity release, please get in touch with our helpful advisers today or request a call back. They'll be happy to listen to your queries and share their expert insights.

Things to consider:

• All our equity release advice relates to lifetime mortgages - a loan secured against your home
• Equity release will reduce your estate’s value and may affect your entitlement to means-tested benefits
• A lifetime mortgage may result in limited or no property equity remaining and will reduce your financial options in the future
• You should always think carefully before securing a loan against your home to repay existing debt
• The loan, plus compound interest, is typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care
• • £1,699 advice fee only payable on completion