Can my family inherit my home if I have equity release?

Equity release lets you access the cash tied up in your property without selling it. However, it’s crucial to understand how this impacts inheritance for your family. While your family will still likely inherit your home, the amount they receive might be less than the property’s full value, depending on the type of plan and how long you live after taking the money. This is because the equity release loan, including interest, will usually need to be repaid from the property’s sale proceeds when you pass away.

Understanding Equity Release

Equity release allows homeowners aged 55 and over to borrow money against the value of their property. This money can be used for various purposes, such as home improvements, helping family members, or supplementing retirement income. There are two main types: lifetime mortgages and home reversion plans.

• Lifetime Mortgages: You receive a lump sum or drawdown facility and continue to live in your home. The loan, plus interest, is repaid upon your death or moving into long-term care.
• Home Reversion Plans: You sell a portion of your home’s ownership to a provider in exchange for a lump sum. You retain the right to live there until your death or move into long-term care.

The interest on equity release plans typically rolls up, meaning it’s added to the loan amount over time. This can significantly increase the amount your estate owes, potentially reducing the inheritance for your beneficiaries.

How Equity Release Affects Inheritance

The impact of equity release on inheritance depends on several factors:

• The size of the loan: A larger loan means a smaller inheritance for your family.
• The interest rate: Higher interest rates will increase the total amount owed, reducing the inheritance.
• The length of time you live after taking the loan: The longer you live, the more interest will accrue, potentially significantly impacting the inheritance.
• The value of your property: Increases in property value may offset the impact of the loan and interest, but fluctuations are also possible.

It’s important to carefully consider these factors and understand how they could influence the inheritance available to your loved ones. Seeking independent financial advice is crucial to make an informed decision.

Planning for Inheritance After Equity Release

You can take steps to mitigate the impact of equity release on your inheritance. For example:

• Choose a suitable plan: Carefully compare different equity release plans and providers, focusing on interest rates and fees.
• Consider your estate planning: Ensure your will is up-to-date and clearly outlines your wishes regarding your property and assets. This includes notifying your beneficiaries of your equity release arrangement.
• Regularly review your plan: Keep track of the loan balance and interest accrued. Some plans allow you to make voluntary repayments to reduce the amount owed.

Your property may be at risk if repayments are not made. Failure to repay could lead to legal action, repossession of your property, increased interest rates and additional charges.

Choosing an Equity Release Provider

Selecting a reputable and trustworthy equity release provider is essential. The MoneyHelper website offers valuable resources and information to assist you in your decision making. Always compare different providers’ terms and conditions before committing to a plan. It is always advisable to seek independent financial advice before entering into an equity release agreement.

People also asked

Can I still leave my house to my children if I have an equity release plan?

Yes, you can still leave your house to your children, but the amount they inherit will be reduced by the outstanding equity release loan and any accumulated interest.

Does equity release affect my entitlement to benefits?

Equity release may affect some benefits, so it’s vital to check with the relevant authorities, such as the Department for Work and Pensions, to ascertain the potential impact on your current circumstances.

What happens if I don’t repay my equity release loan?

If the loan isn’t repaid from the sale proceeds of your property, the lender may pursue other assets in your estate or take legal action to recover the funds.

Is equity release a good idea for everyone?

Equity release isn’t suitable for everyone. It carries risks and reduces the potential inheritance for your family. It’s essential to get independent financial advice to determine if it’s the right choice for you.

What are the long-term implications of equity release?

The long-term implications include a reduced inheritance for your family due to the accumulated interest and outstanding loan. Careful planning is essential.

Remember, seeking professional financial advice is crucial before making decisions about equity release. This FAQ is for informational purposes only and does not constitute financial advice. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)