An Equity Release plan is a type of mortgage, and by that I mean it is a straightforward loan made to a homeowner, using the home as security for that loan. What makes an Equity Release plan a little different is that the borrowers are generally over retirement age and no monthly repayments are necessary. Typically, though not at all in every case, the interest due is added to the amount that is borrowed rather than being paid on a monthly basis. This is sometimes called “Rolling up” the interest because over time the amount that eventually needs to be repaid will include the original amount borrowed plus all the interest payments which will include interest charged on previous interest charges. Due to the nature of the schemes, you will receive a schedule which will show how the debt will grow over time, so you (or your family) should never be faced with any unpleasant surprises.
These plans are designed to be repaid in two circumstances; death or a permanent move into Long Term Care.
Equity Release plans can be taken by an individual or jointly. With regard to an individual plan, if the planholder dies, it falls to that person’s beneficiaries to sell the property and, like any mortgage, the outstanding debt is settled before the balance of the sale is paid to the homeowners estate. In the case of joint borrowers, the situation is exactly the same but the property is not sold until the second of the joint owners passes away. This is because of the guarantees that are in place ensuring that a borrower can remain in the property until their death or move into Long Term Care.
Moving into Long term care presents a slightly different situation. In the case of an individual borrower, then it is quite straightforward. A permanent move into Long Term Care is made, the house is sold and the loan repaid. In the case of joint borrowers, if one partner moves into Long Term Care and the remaining partner remains in the property, then nothing happens. If the partner in Long Term Care passes away first, then, again, nothing happens. If the remaining partner passes away, or moves into Long term care themselves, then the property will be sold and the loan repaid.
Video courtesy of Dennis Perry at The Right Equity Release.
Although these situations are pretty straightforward, they do touch upon wider, and possibly more complex, situations. The whole area of looking after the affairs of someone that is in Care, or potentially going into Long Term Care, is one that needs careful discussion with family and, almost certainly, a solicitor. Good advice from a solicitor at outset can and will save considerable work later. An experienced Equity Release adviser can be valuable in advising the kind of questions you will need to ask and explaining some of the situations that can arise.
If you have any questions about Equity Release, contact Dennis direct by completing the form below.