What happens to an equity release plan once the homeowner dies or goes into care? Mark Gregory helps a reader who is wondering whether they can take ownership of their father's property
The Question
My Dad took out equity release plan some years ago. When the time comes for him to leave and the home is sold, is there a way I (his son) can take out a mortgage to pay off the equity release loan so that I can live in the house myself? I have two sisters, so will need to take them into account too.
Mark’s Answer
Hello and thank you for your question. At this stage of your enquiry, I apologise because I have more questions than answers as I would need to know what type of equity release plan your dad has.
The reason for my question is because if he has a Lifetime mortgage, he will currently own 100% of his home. Therefore, when he passes away or leaves his home to enter long-term care, it will usually be sold, the provider will receive the proceeds of the mortgage and any remaining equity will be available to pay for his care or for his beneficiaries on his death, distributed as per the wishes within his Will.
However, the property doesn’t necessarily need to be sold, if you can repay the lender from your own source of funds. So, if you dad passes away, or moves into long term care, the lender will usually provide a 12-month period during which the loan must be repaid.
This loan repayment could be via your own savings (if available) or via some finance arrangement such as a mortgage – for example residential or buy-to-let depending on what the purpose of the house will be moving forward.
I’ve even had situations where the children have actually repaid their parents’ lifetime mortgage following their death with a new lifetime mortgage of their own, as they were over 55 years of age themselves and wished to live there as it was their family home whilst growing up.
Alternatively, your dad may have a home reversion plan where he has sold a share or all of his home in return for a cash lump sum. Assuming he has not sold all of his home, it would be sold on his demise and the provider would receive their share of his home and any remaining equity would be made available for his beneficiaries.
My next question would be in relation to your dad’s estate, does he have a Will and who are the beneficiaries? If you and your sisters are equal beneficiaries of his estate you may all receive a share of his remaining equity, and you may have to purchase their share with agreement from them to secure your dad’s home for yourself. This again could influence the repayment ability of the exiting equity release scheme.
As you will see there are many questions I would need, and any adviser would need these answers to provide you with guidance. At this stage of your enquiry, I would suggest you talk to your dad and ask him for details about his plan, and he may have the answers you need.
Alternatively, if your dad is not aware of explicit details about his plan, I would recommend that he considers a review with one of our friendly, expert whole of market advisers who will help him with any questions and this service would be available free of charge.
Furthermore, with his permission, you and your sisters could attend a meeting to understand your options on his demise. I am sorry I can’t be of any further help at this time.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
