Equity release plans are becoming more and more popular as people over the age of 55 are looking for ways to fund their retirement. As life expectancy increases, so does the chance of needing long-term care. But what will happen if you need to go into long-term care? What happens with your equity release plan?
This article will explore how equity release plans work if someone needs to enter long-term care.
What Type of Equity Release Plan Do You Have?
What happens to your equity release scheme in long-term care depends on the type of plan you have:
Individual (or Single) Plans
Individual plans are usually set up by a person who is on their own or has no partner. They’re designed to provide for the individual throughout retirement.
If you select to have in-home care, you can remain in your house and your plan will continue. You can even use your equity released to fund this care.
However, if you do move into a care facility, your plan will then come to an end. The loan is then repaid through the sale of your house. If your family wishes to, they can settle the plan and use alternative cash to pay back the loan, plus interest.
Joint plans are usually set up by two people – a couple of friends or partners who live together.
The plan will remain in place until both parties have died or have moved into long-term care.
What is the Process?
Your adviser will then notify you about what paperwork is required and the process of settling your outstanding loan, plus the interest.
Will I Leave My Family in Debt?
One of the biggest concerns for many people considering an equity release plan is whether or not they’ll leave their family in debt.
If you go into long-term care and need to be provided with assistance, there’s no requirement that your children provide this – it will come from public funds – so you won’t risk leaving them with any financial problems should anything happen.
In addition, the great news about equity release is that the Equity Release Council1 ensures a ‘no negative equity guarantee2‘. This means that your family will never owe more than the sale value of your home, even if the amount owed is greater, or property prices have plummeted.
Does My Family Have to Sell My Home to Cover the Debt?
In general, yes!
Equity release is usually paid back through the sale of your home when you die or move into permanent care.
As previously mentioned, in some cases, equity release can be paid off using alternative funds, should they wish to retain ownership of your home. You can speak to your financial adviser about this.
Equity Release Plans Can Help With Long-Term Care Costs
Whether you’ve got an individual plan or a joint agreement, if someone goes into long-term care, then releasing equity can help them cover some of the costs involved to go to a more upmarket facility.
In addition, you can even use the funds you have released to access at-home care. Meaning that you won’t be required to go to a care facility.
You might want to learn about: The 12 Most Popular Equity Release Uses
What Happens to Your Equity Release Plan if You Go Into Long-Term Care?
If you select to have long-term care from the comfort of your home, like a nurse or a family member moving in, then the plan will continue. Be sure to ask your financial adviser about the terms of your plan, regarding whether you can have others live with you.
However, if you move to a care facility or residence, then your plan will come to an end.
How Will It Affect My Equity Release Plan If I Go Into a Nursing Home or an Assisted Living Facility for Any Reason?
The equity release plan is not affected by your stay in a nursing home or assisted living facility unless you no longer have the mental capacity to make decisions about your plan.
If You Go Into Long-Term Care, Will Your Equity Release Plan Be Canceled?
No. Equity release plans are not related to health or other medical conditions. You own the property that is being released and can still live in it if you wish. However, there may be consequences for any mortgages attached to the property (an interest rate increase).
Do Equity Release Plans Work For People Who Go Into Long-Term Care?
Yes, equity release plans work for people who go into long-term care. If you need help in the future and your children or partner can’t provide it, then public funds will cover that cost, so there’s no requirement for them to sell your home if they don’t wish to do so.
How Much Does Long-Term Care Cost?
The cost varies depending on the type of care you need, for example, whether it’s nursing or assisted living, and then there are other factors like who will be picking up the bill and how much equity release has been used so far.
Equity release is fantastic in that it allows you to live a stress-free retirement before moving into permanent care. In addition, you might want to use the funds that you have released to hiring private care, so you can stay with your partner or in your beloved.