How does equity release work when you die?

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Equity release is one way to release funds in later life. But what happens after you die? Knowing the next steps can give you and your loved ones comfort. It also gives you time to put any plans in place.

What happens to your equity release plan when you die?

When you die with an equity release plan in place, your provider needs to be told as soon as possible.

With a lifetime mortgage, your home is usually sold by the executor of your estate. The funds can be used to repay the equity release provider. But the loan can be repaid by other means.
If you have a home reversion plan, the provider gets their share when your home is sold. If your provider owns all of your home, they get all the proceeds. If they just own half of it, they get half of the proceeds.

With both products, if there’s any money left over it will go to those named in your will.

What if you have a surviving partner?

If you have a joint equity release plan, the plan is written in both your names. This means the surviving partner can still live in the property after their partner dies.

The surviving partner could choose to move home. But the provider will check the new property offers enough security for the plan. It must also meet their lending criteria.

The equity release plan ends when the last borrower dies or enters long-term care. This is when the provider must be repaid.

If you cohabit but didn’t make a joint plan, your surviving unnamed partner may need to move out as in most cases, it's likely that the home will need to be sold to repay the debt.

Who pays back your equity release provider?

When you die, your executor or next of kin needs to tell your provider. They must also send them a copy of your death certificate and probate document. Your policy number will be required, so make sure it's easy to find.

The provider will want to know how the debt is to be repaid. If this involves the sale of your home, they will ask for regular updates. Once repayment is complete, the Land Registry files will be updated to show that no money is owed on the property.

Most lifetime mortgages now come with a no negative equity guarantee. This means your loved ones will never have to repay more than the home is sold for. That’s still the case if this is less than the amount owed. It means your plan won’t leave your loved ones in debt.

When does your equity release plan need to be paid back?

As the settlement amount is usually paid from the property sale, the provider will allow time for it to be cleared and sold. Most providers allow up to 12 months after the death of the last borrower for the sale and debt to be repaid. As some plans have shorter timelines, it's best to check your T&Cs.

Lifetime mortgage: The total released funds and interest must be repaid. There won’t be any early repayment charges payable after the last partner dies. The loan will accrue interest until the plan is repaid in full.
Home reversion: When your property is sold, the provider will get their agreed share of the final sale price. Anything left goes to your estate.

Does your house need to be sold to pay off your equity release plan?

The house tends to be sold to pay off the plan. But this doesn't have to be the case. With a lifetime mortgage, the provider wants the money, not the property itself. If your loved ones want to keep the home, they could repay the loan with other funds.

With a home reversion plan, the house must be sold, as part or all of it may already belong to the provider. The family could buy back the property from the provider. But this would cost more than the sum paid by the provider, as it would need to be bought back at current market value.

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What happens if you enter full-time care?

If you move into long-term care, your equity release plan ends, and you need to repay the provider. If you have a joint plan, it continues until your surviving partner dies or enters long-term care.

If the provider is repaid and there are funds left, these might be used to fund the care. Your local council will conduct a Financial assessment to see how much you might need to pay.

What happens if you make repayments?

With some lifetime mortgages, you could choose to make regular interest repayments. This helps to keep the total costs down. The full loan amount will still be due after the last borrower dies or enters long-term care.

Should your loved ones consult a financial adviser?

It's simpler for your loved ones to sort out your equity release plan after your death if you've left a clear plan. This should contain details of your obligations to your equity release provider.

If it's a joint plan and one partner has died, it may be worth revisiting the plan with a financial adviser. Here’s why:

If you have a lifetime mortgage, interest rates may be lower than when the plan was set up. A new plan might suit the living partner's changed needs better.
If household income is lower, it's worth seeing if you qualify for other benefits.
If the surviving partner wants to move home, they may need guidance with early repayment charges or the provider's lending criteria.
With a joint home reversion plan, it’s usually not possible to make changes to your initial agreement. Paying back the equity early may incur charges.