What happens to your lifetime mortgage plan if you go into long-term care?

Article written by Mortgage Advice Bureau Later Life, our preferred equity release partner. This article is not intended to be financial advice to any individual. The views expressed are those of the author and Moneyfactscompare.co.uk does not endorse the content.

There may come a time when you can no longer live without help in your own home, and while it may not be the most ideal situation, moving into long-term care may be necessary.

While your health will always be your biggest concern, it’s only natural that you may be concerned about your lifetime mortgage. After all, what happens to your equity release plan when you move into long-term care?

At the end of the day, the plan you have in place will determine what happens when you move into long-term care. You may need to make different considerations based on whether your plan is in single or joint names.

Keep in mind that your equity release plan should enable you to either stay living in your home until the end of your life, or until you’re unable to continue living alone. In this case, you may have an individual equity release plan, which will have been agreed upon by a single homeowner. This would also be the only named person on your property deeds. If you move into long-term care, the agreement will end, and the final balance must be repaid. This is the sum of the total amount borrowed, as well as the rolled-up interest. 

Your property can be sold to pay this balance, and the balance owed will be paid to your provider. In this instance, you will not have to pay any early repayment charge.

A joint plan is an agreement that has been co-signed by both parties on the deeds. If one of the plan holders moves into long-term care, the plan will not end. Instead, the other named person can continue living in the property until they too move into long-term care, or until their death.

The provider will still need to be notified of these changes.

You may find that you do not wish to enter long-term care, but still need support, so you decide to move in with family instead. This will obviously depend on the level of support you need, so it’s worth checking with your lifetime mortgage provider what their stipulations are and if you need to repay the lifetime mortgage.

Some providers will only allow family residence if your medical needs require it, while others may not be as specific. These are questions worth asking when you’re starting your search for lifetime mortgage providers.

No matter the situation, your lifetime mortgage scheme will end when the final applicant dies or moves into long-term care. When the last person leaves the property, your executors (or whoever you have nominated to handle your affairs) can sell the property or use alternative funds to repay the loan.

They will be able to decide how and with whom they sell the property, as well as agree with the provider on a listing price for the property. It will also be the responsibility of the executors and lender to agree on a final sale price.

It is, of course, in everyone’s best interest to sell the property as soon as possible, as your lifetime mortgage plan will continue to accumulate compound interest until it has been repaid. Finally, any tenants, family members or lodgers will need to move out of the property when it has been sold.

A lender will typically only need to be involved in two instances. The first is if the property is sold for less than the outstanding balance on the lifetime mortgage. If there is a “no-negative equity guarantee”, the lender will want to ensure that the property is being sold for a fair market price.

The second instance comes into play if the lifetime mortgage has not been paid back following the 12-month period. The lender will take on the case for review. Sometimes this may result in the lender selling the property, although this is typically a last resort and highly unusual.

Typically, it would be the executor of the estate who settles the loan from the proceeds of the sale of the house. It is important to note that they will not find themselves saddled with any debt that could affect their own assets (at least not with a provider that’s a member of the Equity Release Council). One of the core practices of the Council is that each member must provide a no-negative equity guarantee for all their plans.

If you’re looking at lifetime mortgage plans and are considering releasing some of the equity from your home, then get in touch with an expert equity release adviser at Mortgage Advice Bureau Later Life. They can help you make a decision that is most suitable for your circumstances.

Mortgage Advice Bureau Later Life offers lifetime mortgage products from a carefully selected panel of providers. Mortgage Advice Bureau Later Life offers lifetime mortgages only, which is a loan secured against your home.

Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. You should always think carefully before securing a loan against your property. Unless you decide to go ahead, Mortgage Advice Bureau Later Life service is completely free of charge, as their advice fee of £1,295 is only payable on completion of a plan.