Equity Release Payback on Death: What You Need to Know

Dealing with financial matters during an emotionally difficult time, like the passing of a loved one, can be challenging. One of the crucial financial products that often need immediate attention is the equityThe difference between the value of the property and the amo... release plan. This article aims to provide comprehensive information on what happens to an equity release mortgage or scheme upon death, touching upon different types of equity release, financial implications, and important steps for beneficiaries.

Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.

Post Topics

Types of Equity Release and their Implications

The Role of the Equity Release Council

Steps for Beneficiaries

Financial and Tax Implications

Key Points to Remember

FAQs

Types of Equity Release and their Implications

1. Lifetime Mortgages

In a lifetime mortgage, the outstanding mortgage will usually be repaid from the sale proceeds of the property. The estate has a period of time—often 12 months—to finalise the property sale. Monthly repayments aren’t typically required, but some plans offer optional repayments to manage the loan balance.

2. Home Reversion Plans

In reversion schemes, the equity release provider owns a share of the property. Upon death, that share is sold back to the provider.

The Role of the Equity Release Council

Adherence to guidelines from the Equity Release Council ensures a “no negative equityA situation where the value of the property is less than the... guarantee,” meaning the debt will never exceed the value of the home, safeguarding against a downturn in property prices. This can be particularly reassuring for joint plans, where a surviving partner may continue to live in the house.

Steps for Beneficiaries

1. Death Certificates: Obtain the original death certificate, as copies are generally not accepted by financial institutions.
2. Contact the Equity Release Provider: The next step is to contact the equity release plan provider. You’ll need to provide personal details and death certificates.
3. Probate Document: Some providers may require a probate document for further validation.
4. Valuation and Sale: The property is then valued, and the sale process begins. The sale price will help determine if the total loan can be covered.
5. Repayment: The outstanding debt and any additional charges, such as repayment fees and arrangement fees, are then repaid using the sale proceeds.
6. Leftover Funds: After repayment, any extra money left can serve as inheritance money for the beneficiaries.

Fees and Costs

1. Advice Fees: Always seek professional advice before making any financial decisions, especially when it involves lifetime mortgage debt or any form of income.
2. Arrangement Fee: This is a one-time payment to the equity release provider to set up the loan.
3. Repayment Charges: These can vary from provider to provider and even lender to lender.
4. Other Costs: Legal costs and completionThe point at which a property purchase is finalized and owne... costs might also be incurred during the process.

Financial and Tax Implications

1. Means-Tested Benefits: Having a lump sum from the sale of the property could affect eligibility for state-funded care and other means-tested benefits.
2. Inheritance Tax: The sale proceeds might have implications on inheritance tax thresholds. However, the costs of borrowing and other charges are often deductible.
3. Income Tax: Typically, the money received from an equity release is tax-free, but it’s advisable to consult a financial advisor about potential tax implications.

Alternatives to Equity Release

Before deciding on an equity release plan, consider alternatives like a regular mortgage, personal loans, or even downsizing on the property ladder.

Key Points to Remember

1. Consult Professional Advisors: Ensure that you are getting the correct advice that is relevant to your situation, whether it’s from qualified advisers or experts in the field.
2. Check Rates: Rates on equity release can significantly impact the cost of borrowing, so make sure to use an equity release calculator for an accurate equity release estimate.
3. Be Prepared: Dealing with an equity release upon death can be an emotional time, and having a clear understanding of the procedures can alleviate some of the stress.

In conclusion, understanding what happens to an equity release plan upon death is essential for both the holder and the beneficiaries. With expert advice and careful planning, navigating through the repayment process can be manageable even during a difficult time. Make sure you are well-informed about the various aspects, including but not limited to, types of plans, costs, and implications, to make the best choices for your loved ones.

FAQs 

What happens to a lifetime mortgage equity release plan upon the death of the holder?

Upon the death of the holder, the outstanding mortgage balance is usually repaid from the sale proceeds of the property. The estate has a period, often 12 months, to finalise the sale of the property.

What is the role of the Equity Release Council in equity release plans?

The Equity Release Council ensures adherence to guidelines that include a “no negative equity guarantee.” This means the debt will never exceed the value of the home, offering protection against a downturn in property prices.

What steps should beneficiaries take after the death of an equity release plan holder?

Beneficiaries should first obtain the original death certificate, as copies are generally not accepted. They should then contact the equity release provider and may need to provide a probate document for further validation. The property is valued, the sale process begins, and the outstanding debt is repaid using the sale proceeds.

Are there any fees and costs associated with equity release plans?

Yes, there are several fees such as advice fees, arrangement fees, and repayment charges. Legal and completion costs may also be incurred during the process.

Q5: What are the financial and tax implications of equity release?

A lump sum from the sale of the property could affect eligibility for state-funded care and other means-tested benefits. The sale proceeds might also have implications on inheritance tax thresholds, although borrowing costs are often deductible. Typically, the money received from equity release is tax-free, but consulting a financial advisor is advisable.