What Happens to Equity Release When You Die?
If you have released equity from your home, you may be wondering what happens to the money you owe when you die. Will your family have to repay the loan? Can your children inherit your property? And what happens if you have a joint equity release plan with your partner?
These are important questions to consider before taking out equity release, particularly if leaving an inheritance is important to you.
The good news is that equity release plans are designed to be repaid when the plan comes to an end. With a lifetime mortgage, this is usually when the last surviving borrower dies or moves permanently into long-term care. The loan is normally repaid from the sale of the property.
However, the amount that remains for your beneficiaries will depend on how much you borrowed, the interest that has accumulated, the value of your property and the terms of your plan.
In this guide, we explain what happens to equity release when you die, using practical examples to help you understand the potential benefits and drawbacks.
What happens to a lifetime mortgage when you die?
A lifetime mortgage is the most common type of equity release. It allows you to borrow money against your home while retaining ownership and continuing to live there, subject to the terms of your agreement.
Unlike a conventional repayment mortgage, you do not normally have to make monthly repayments unless you choose a product that requires or allows them.
If you have a lifetime mortgage with interest roll-up, the interest is added to the amount you owe. This means the outstanding balance can increase over time.
When the last surviving borrower dies, the lifetime mortgage usually becomes repayable. However, interest may continue to accrue on the outstanding balance until the loan is fully repaid, increasing the total amount owed. The process generally involves the following steps:
The lender is notified. The executor or personal representative of the estate contacts the lender to explain what has happened and establish the outstanding balance and repayment requirements.
The estate is administered. The people responsible for dealing with the estate arrange the necessary legal and financial matters, which may include applying for probate.
The property is usually sold. The proceeds from the sale are used to repay the lifetime mortgage, including any outstanding interest and applicable charges.
The remaining money goes to the estate. Once the mortgage and relevant costs have been paid, any remaining proceeds can be distributed to the beneficiaries in accordance with the will or the applicable inheritance rules.
The precise process and timescales depend on the lender, the terms of the mortgage and the circumstances of the estate.
It is important to understand that the lender does not automatically take ownership of your home when you die. With a lifetime mortgage, you retain ownership during your lifetime, and the loan is secured against the property.
What happens if you have a joint equity release plan?
If you take out a lifetime mortgage jointly with your spouse or partner, the situation is different when the first borrower dies.
In most joint lifetime mortgage arrangements, the surviving borrower can continue living in the property under the terms of the plan. The loan does not normally become repayable simply because one borrower has died.
Instead, repayment usually becomes due when the last surviving borrower dies or moves permanently into long-term care, in accordance with the agreement.
This can provide valuable reassurance for couples who want to ensure that the surviving partner can remain in their home.
A worked example: a couple with a joint lifetime mortgage
Imagine David and Helen, both aged 70, own a home worth £425,000. They have taken out a joint lifetime mortgage of £85,000 to make home improvements and supplement their retirement income.
A few years later, David dies.
Helen can normally continue living in their home without having to repay the lifetime mortgage immediately, provided she complies with the plan's terms and conditions.
When Helen eventually dies, the loan becomes repayable. The property is sold, and the outstanding balance is settled from the proceeds.
The potential positive: Helen has the reassurance of being able to remain in her home after David's death without having to find the money to repay the mortgage straight away.
The potential negative: Interest may continue to accumulate while Helen lives in the property, reducing the amount that could eventually be inherited by their children.
It is essential to check how a plan treats joint borrowers before proceeding. The arrangements may differ if only one partner takes out the mortgage or if ownership and borrowing are structured differently.
Can my children inherit my house if I have equity release?
Yes, your beneficiaries can inherit the remaining value of your estate, and they may be able to inherit the property itself. However, the outstanding lifetime mortgage must be dealt with first.
If your family wants to keep the house rather than sell it, they would need to arrange an acceptable way to repay the loan, subject to the lender's requirements. This might involve using other estate assets or arranging suitable finance.
Your beneficiaries are not normally required to use their own money to cover a shortfall on a lifetime mortgage that includes a valid no-negative-equity guarantee. However, they cannot simply inherit the property free of the debt without settling the mortgage.
A worked example: what could be left for your family?
Suppose you own a home worth £500,000 and have a lifetime mortgage with an outstanding balance of £150,000 when you die.
For simplicity, assume the property sells for £500,000 and there are no other property-sale costs or estate liabilities to consider.
Item | Amount |
Property sale price | £500,000 |
Outstanding lifetime mortgage | £150,000 |
Remaining equity before other costs | £350,000 |
In this hypothetical example, £350,000 remains after repaying the lifetime mortgage. This money forms part of the estate and can be distributed to the beneficiaries in accordance with the will or the applicable inheritance rules.
The potential positive: Your family could still receive a substantial inheritance despite the lifetime mortgage.
The potential negative: Without the borrowing, there would have been more equity available to inherit, assuming all other circumstances remained the same.
The figures are illustrative only. The actual amount available would depend on the sale price, outstanding debt, fees and other relevant estate liabilities.
What if the interest has built up over many years?
One of the most important things to understand about a lifetime mortgage is the effect of compound interest.
If you choose a plan where interest is rolled up rather than paid, interest is added to the outstanding balance. Future interest is then charged on the increased balance.
Over a long period, this can make a significant difference to the amount owed.
A worked example: how the loan could grow
Imagine you take out a lifetime mortgage of £80,000 at a hypothetical fixed interest rate of 6% a year. You make no repayments, and interest compounds annually.
Time elapsed | Illustrative outstanding balance |
When the loan starts | £80,000 |
After 5 years | £107,058 |
After 10 years | £143,267 |
After 15 years | £191,725 |
After 20 years | £256,571 |
These figures are calculated using annual compound interest. They are not a quote or forecast for any particular lender or product. Actual lifetime mortgages may calculate and apply interest differently.
The example demonstrates why the length of time a loan remains outstanding matters.
If your property increases in value, this may help offset some of the effect of the growing debt. However, house prices can also fall, and future property values cannot be guaranteed.
The potential positive: You may have been able to use the money to improve your quality of life, carry out essential work on your home or help your family while you were alive.
The potential negative: The longer interest rolls up, the less equity may remain for your beneficiaries.
Some lifetime mortgages allow voluntary repayments, which can help control the growth of the balance. Whether this is appropriate will depend on your finances, the product and your retirement plans.
What happens if the house is worth less than the equity release loan?
This is a common concern for people considering equity release.
With a lifetime mortgage that includes the Equity Release Council's no-negative-equity guarantee, you or your estate should not have to repay more than the net proceeds from selling the property, provided the guarantee's conditions are met.
This protection is important because property values can fall, and interest can accumulate over many years.
A worked example: when the property value falls
Suppose you have an outstanding lifetime mortgage balance of £230,000, but your property is worth only £210,000 when the loan becomes repayable.
Assuming the property is sold for the best price reasonably obtainable, and the plan's conditions are met, a valid no-negative-equity guarantee would protect your estate from having to make up the shortfall.
The potential positive: Your beneficiaries would not normally be expected to pay the £20,000 difference from their own money under a qualifying guarantee.
The potential negative: There may be little or no equity left to pass on to your family.
It is important to check whether your particular plan includes this guarantee and understand the conditions that apply. Do not assume every equity release arrangement offers identical protection.
Can my family keep the house instead of selling it?
Potentially, yes. Selling the property is the usual way to repay a lifetime mortgage, but it may not be the only option.
If your beneficiaries want to keep the home, they could explore whether the outstanding loan can be repaid using other funds or whether suitable alternative finance is available.
For example, suppose your property is worth £400,000 and the outstanding lifetime mortgage is £120,000.
Your children may wish to retain the property because it has sentimental value or because they intend to live in it.
They would need to establish how the £120,000 balance, plus any applicable interest and charges, could be repaid. Depending on their circumstances, they might use money from the estate, their own available funds or an appropriate mortgage.
However, they should not assume that they will automatically be able to take over the existing lifetime mortgage. The lender's terms and requirements will determine the available options.
It is also worth remembering that keeping the property may involve additional costs, such as maintenance, insurance and other property-related expenses.
If leaving the family home to your children is a priority, this is something to discuss with a specialist adviser before taking out equity release.
What are the advantages and disadvantages of equity release when you die?
Equity release can help homeowners access money during retirement, but it is important to consider how the decision may affect their estate.
Potential advantages
You can benefit from your property while you are alive. You may use the money for home improvements, retirement spending or other financial priorities.
You can normally remain in your home. A lifetime mortgage generally allows you to continue living in the property for life, subject to the plan's conditions.
Your family may still receive an inheritance. Any equity remaining after the loan and relevant costs have been settled can form part of your estate.
A no-negative-equity guarantee can provide protection. Qualifying plans protect the estate against owing more than the net sale proceeds of the property, subject to the guarantee's terms.
Potential disadvantages
Your inheritance may be smaller. The outstanding loan and any accumulated interest reduce the equity available to your beneficiaries.
Your family may need to sell the property. If there are insufficient alternative funds to repay the loan, selling the home may be necessary.
Keeping the property may be difficult. Beneficiaries may need to find a substantial sum to repay the mortgage if they wish to retain the home.
Your future options may be affected. Releasing equity can reduce the funds available for future care needs and may affect eligibility for means-tested benefits.
There may be additional costs. Depending on the plan and circumstances, fees and other charges may apply.
Whether equity release is appropriate depends on your priorities. If you want to enjoy more financial freedom during retirement, the benefits may be worth considering. If preserving as much of your estate as possible is your main objective, other options may be more suitable.
Are there alternatives if I want to protect my inheritance?
If leaving an inheritance is important to you, it is worth exploring alternatives before deciding whether to release equity.
Depending on your circumstances, these could include:
Continuing to use your existing savings or investments. This may avoid taking on additional borrowing, although it could reduce the savings available for emergencies or future care.
Downsizing. Selling your current home and moving to a less expensive property could release capital without taking out a lifetime mortgage. However, moving involves costs and may mean leaving a home you love.
Considering a retirement interest-only mortgage. If you can afford the monthly interest payments and meet the lender's criteria, this could provide borrowing without the same interest roll-up effect. The capital would still need to be repaid, usually when the property is sold.
Releasing a smaller amount. If a lifetime mortgage is suitable, borrowing less could reduce the initial debt and the potential long-term impact on your estate.
Choosing a plan that allows voluntary repayments. Making payments towards the interest or capital may help limit the growth of the balance, provided the product's terms suit your needs.
An adviser should consider your circumstances and the alternatives available before recommending a solution. There is no single option that is right for everyone.
Does equity release affect inheritance tax?
Equity release can affect the value of your estate, which may be relevant when considering inheritance tax.
The outstanding lifetime mortgage is a debt secured against your home, and your estate's value will depend on its assets and liabilities, alongside the applicable tax rules.
However, releasing equity and giving the money away does not automatically remove any potential inheritance tax liability. Gifts can have tax implications, and the treatment depends on factors including the amount gifted, the timing and the circumstances.
If you are considering equity release partly to help your children or grandchildren financially, it is sensible to discuss inheritance tax and estate planning with an appropriately qualified professional.
What should I do if a family member dies with equity release?
If you are responsible for dealing with the estate of someone who had a lifetime mortgage, the first step is to contact the lender.
You should establish the outstanding balance, ask about the repayment process and confirm the timescales and documentation required.
You may also need to work with the deceased's solicitor or executor to deal with probate, the property sale and the distribution of the estate.
Do not assume the property must be sold immediately or that the lender's repayment arrangements are identical across all plans. Ask the lender to explain the specific terms that apply.
If you are unsure about your legal responsibilities, seek appropriate legal advice.
So, what happens to equity release when you die?
In most cases, a lifetime mortgage is repaid from the proceeds of selling the property after the last surviving borrower dies or moves permanently into long-term care.
Your beneficiaries can inherit whatever remains after the loan and relevant costs have been paid. If they wish to keep the property, they will need to explore how the outstanding balance can be settled.
The most important consideration is how equity release fits into your wider financial plans. It can provide access to money when you need it, but it can also reduce the amount you leave behind.
At Viva Retirement Solutions, we believe it is important to consider both the immediate benefits and the long-term implications before making a decision.
Sometimes equity release may be appropriate. In other circumstances, a different later life lending option or downsizing may be more suitable.
If you are considering releasing equity and want to understand how it could affect your family and your estate, contact Viva Retirement Solutions for a free, no-obligation discussion about your options.
We will look at your individual circumstances, explain the alternatives and help you understand the potential benefits and drawbacks before you make a decision.
Important information
A lifetime mortgage is a long-term commitment and is secured against your home. Equity release is not suitable for everyone and may reduce the value of your estate and affect your entitlement to means-tested benefits.
Your home may be repossessed if you do not keep up with the repayments on your mortgage.
A fee of up to £995 is only payable on completion of your Lifetime Mortgage if you proceed with an application.
The examples in this article are illustrative only and are not financial advice or an indication of the amount you could borrow or the inheritance that may remain. The amount available, interest rate and terms will depend on your individual circumstances, the property and the lender's criteria.
You should seek specialist advice before making a decision about equity release or later life lending.
