What Happens to Your Debt When You Die?

Upon your passing, it is imperative to promptly notify your equity release plan provider. The manner in which your estate is handled depends on the type of plan you have in place.

In the case of a lifetime mortgage, the executor of your estate typically oversees the sale of your home to repay the equity release provider. This process also encompasses settling any additional costs associated with the sale, such as fees for estate agents and legal services. It’s important to note that alternative methods of repaying the loan may be explored if they are available, which means your home does not necessarily have to be sold.

Alternatively, if you hold a home reversion plan, the provider’s share is realized when your home is eventually sold. The extent of their share hinges on the portion of the property you initially sold to them. If the entire property was sold, they receive the entirety of the proceeds; if only half was sold, they receive half of the proceeds from the sale.

In both scenarios, whether it’s a lifetime mortgage or a home reversion plan, any remaining funds are directed towards the beneficiaries specified in your will.

Joint Plans:

In the event of a joint equity release plan, the documentation will bear both your names, ensuring that the surviving partner retains the right to reside in the property following your demise. Should they opt for a downsizing move post your passing, the provider’s approval will hinge on whether the new property offers sufficient collateral to secure the existing plan.

The culmination of the equity release plan transpires upon the demise of the last borrower or their transition into long-term care, necessitating repayment to the provider. Conversely, if you are the sole holder of the plan, your surviving partner might need to vacate the premises to facilitate the property’s sale and settle your outstanding debt.

Upon your demise, your designated executor or next of kin will be responsible for notifying your equity release provider. It is imperative that they furnish the provider with a copy of your death certificate and the probate document. Equally crucial is ensuring that your policy number is readily available to them, either by directly providing it or by storing it in an easily accessible location.

The provider will require updates regarding the repayment process and the progress of the home’s sale. Upon the completion of the repayment, the Land Registry will be revised to indicate that there are no outstanding debts associated with the property.

It’s worth noting that most lifetime mortgages now incorporate a no negative equity guarantee. This safeguard ensures that your beneficiaries will never have to repay an amount exceeding the proceeds garnered from the home’s sale, even if this sum is less than the outstanding equity release amount. This guarantee effectively eliminates the possibility of burdening your beneficiaries with debt stemming from your equity release plan.

As the settlement sum typically derives from the proceeds of the property’s sale, the equity release provider typically allows for a reasonable period to empty and sell the property. While most equity release providers grant a window of up to twelve months following the individual’s passing for the property’s sale and the settlement of the balance, it’s advisable to review the terms and conditions specific to your equity release plan, as some plans may have shorter timelines.

In the case of a lifetime mortgage, the repayment amount encompasses the initial borrowed sum along with any subsequent borrowings, plus the accrued interest over the loan’s duration. Notably, there are no early repayment penalties once the last homeowner has passed away. However, it’s important to note that interest will continue to accrue until the plan is completely settled.

Conversely, for a home reversion plan, upon the sale of your property, the provider will receive their agreed-upon percentage share of the final sale price, with any surplus funds being directed to your estate.