When considering equity release, it is essential to understand what happens at the end of the plan and who's responsible for repaying the equity release balance owed.
Equity release needs repaying following the last homeowner's death or when the last homeowner enters long-term care. Lenders typically allow 12 months for your estate to repay; however, some afford as little as 6 months. Your Key Facts Illustration and Mortgage Offer show your plan's timeframes under Section 7, Risks.
Throughout this guide, we will be focussing on the most common type of Equity Release plan, the lifetime mortgage. Lifetime mortgages make up over 99.5% of the new plans we recommend, with the most significant benefit being that you retain homeowenership.
Equity release plans allow homeowners aged 55 and over to borrow money secured against their property. You are not required to make any repayments while you live in your home, although you may make voluntary payments if you wish.
Equity release plans end when you pass away or move into long-term care. If you borrow jointly with another homeowner, the plan only ends when the last homeowner passes away or moves into long-term care.
At the end of the equity release plan, your estate is responsible for repaying the equity release balance owed. Most equity release plans are repaid using the sale proceeds of your property. It will be the executors of your estate or next of kin who will be responsible for selling your property.
While many people think that the lender will sell the property, they do not want to be involved in selling the home. The lender will allow time for marketing the property and sold to repay the balance due (typically 12 months from the end of the plan).
Upon the last homeowner's death, Equity release lenders typically allow 12 months for repaying the balance owed. However, some plans allow less (as little as 6 months), so it is essential to look at the specific plan's terms and conditions.
You will find details of the amount of time you have to repay within the Key Facts Illustration and Mortgage Offer. Listed under section 7, Risks, you will discover when the equity release needs repaying.
let's look at each lender and how long they allow for the balance to be repaid on most of their new lifetime mortgages:
|Equity Release Provider
||Months to repay following the death of the last homeowner
If the equity release is not repaid, the lender will contact your estate's executors to discuss the plans to settle the balance owed. Most often the lender will allow more time to repay. However, if little or no progress has been made with marketing the property, the lender may site a breach of the equity release terms.
Only if the terms of the equity release are breached could the equity release company sell your home. But this is a last resort for the lender, and they require repaying without being involved with selling the property.
Most equity release plans will need repaying within 12 months of the last homeowner entering a care home. However, some lenders expect to be repaid within 6 months. The exact timeframe is detailed in your Key Facts Illustration and Mortgage Offer, under section 7, Risks.
Most lenders will also specify that the property cannot be left empty for more than 6 months (although some plans are as little as 3 months) without their prior consent. This helps ensure that there is appropriate buildings insurance in place before the property being left empty.
You should check your Mortgage offer to find out how long you can leave your property empty without needing prior consent.
In any event, the lender will need notifying once the homeowner has left the property and moved into permanent long-term care.
With an equity release plan that meets the Equity Release Council standards, you can repay whenever you like. If you repay early, you may be charged an early repayment charge (ERC). However, some plans allow you to repay without an ERC in certain circumstances, including annual allowances, significant life events, downsizing.
Making overpayments on an equity release with your annual allowance
Many lenders offer plans which allow you to make partial repayments without incurring ERC's. They are often on an informal basis where they enable you to make payments but are not required.
We have already discussed how some lenders offer plans which allow up to 10% repayment each year, while some plans allow up to 12%, and others 40%.
Equity release downsizing protection
Downsizing protection is another excellent exemption offered by some lenders. This exemption allows you to pay your equity release back early when you move home without incurring any early repayment charge.
Different lenders have variations for this feature. A notable difference between lenders is that some will only let you use downsizing protection when they don't approve of the new property. Other lenders allow you to use it at any point, regardless if they are willing to port your existing plan.
Repaying equity release following a Significant Life Event
If you take a joint equity release plan out, you may wish to repay following the death of the first homeowner or when the first homeowner enters permanent long term care. The significant life event exemption allows you to repay without incurring an early repayment charge.
Most plans which have this feature allow three years for the repayment to take place. When explaining this feature, I say this exemption gives you:
- A year to grieve;
- A year to plan;
- A year to sell.
I have written a complete guide on repaying your equity release, which explores repaying early in greater detail.
Following the death of the last homeowner, the equity release plan will come to an end, and the lender will need to be repaid. If you are borrowing with someone else (a joint application), the plan will only end on the death of the last homeowner. Upon the first death, the surviving homeowner will have the right to stay in the property until they pass away or move into care.
If you have an equity release plan and your beneficiaries wish to keep the property, they can do so. The amount owed to the lender will still be due; however, they can repay the sum from liquidating other assets, cash or investments.
Should your estate not have enough to repay the sums owed, your beneficiaries may wish to refinance the property when taking ownership. This could be through using the sale proceeds of their property or arranging a new mortgage on the property. They may even be able to take out an equity release plan in their name at the time.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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