As we approach our senior years and having lived a good life with many more great years to come. While our life has involved the experience of someone close passing, a friend or family member dying, we come to appreciate that a death is never timely. Nor does it arrive when we are graced with better financial stability, which is why we wish to discuss a little about Equity Release and how they relate to planning a funeral.
No matter how many times we go through the process, it doesn't become easier to deal with the emotions and tasks involved. Now imagine the feelings of loved ones dealing with your passing. In the UK there is an incredible amount of time between the announcement of a death and the ceremony / burial itself, compared to other cultures. This can be seven to ten days to two weeks in some urban areas and cities.
This longer period of mourning doesn't have any benefits, other than to allow grief to gradually deal with itself. Whether provided the time to deal with finances, arrange a better funeral or contact more friends and family. There is one thing anyone who has experienced a family member dying would be relieved at and welcome, and that's having had all those funeral plans already taken care of.
It may seem quite bleak to plan for your own funeral but like most things financially related, mortgage, loan debts, it's not really ourselves we are thinking about. We buy life insurance so that our Wife, Husband or Partner can be better cared for. We write wills to ensure money goes to family, children and charities we wish it to help. Arranging an Equity Release plan is a way of doing that, albeit the funeral aspect is a small reason for doing so. The larger part of any plan such as this is to maximise enjoyment in your later years from money which is yours.
A lot of people reach the ages of 50 and 60 having a home to live in which is either owned outright or still with mortgage. While home ownership has decreased phenomenally in the last decade in the UK, there are millions of people who can benefit from releasing the cash they have earned, by way of an Equity release mortgage or straight home reversion.
There are traditional methods of contributing to such a scheme to plan for a funeral such as life insurance or in partnership with a local Funeral Director and a prepaid funeral service. However if you are no longer in work, have accessed your pension and living on those payments, yet have a considerable sum invested in your home. This form of financial arrangement can assist with funeral planning and payment.
The equity is the amount a house is worth minus any loan debts or mortgage amounts outstanding. The type of lifetime mortgage finance is only available to people over the age of 55. When it comes to pulling cash out of your home that doesn't need mortgage refinance, this is usually restricted to those over the age of 65. This transaction simply takes part of the money you hold as an asset (the property) and provides you a cash lump sum now, as well as pushing money into any other trusts, like funeral planning or for children, as you see fit.
It's difficult to answer with a blanket yes or no, as to whether this financial transaction and releasing cash from the property you live in, is a good idea or not. Every individual's personal situation will be different. It is important to understand that while you are not selling your home outright and can remain in the home, once the cash is pulled out and spent, it will never return. The part of your home the cash was borrowed against will end up with the company which gave you the money at a time after your death.
You also need to consider family members and children. Do you wish to leave an inheritance? Property prices do go up more than they go down - usually, and certainly when talking twenty to thirty years, even if pulling out £250,000 from a home could see that replaced due to market forces and rising property prices by the time you die.
Added to which, when you consider the arrangement fees for such an Equity release for funeral planning, you may perhaps wish to understand those costs in more detail. If a funeral costs £2000 at the marginally cheaper end today, you can well imagine that in twenty years time it could well be twice or treble that amount by 2030.
Paying for your funeral now, while at the same time taking a cash lump sum from your property to enjoy the many years to come, might make for a good plan if it suits your unique circumstances/situation. Also a well thought out one when contemplating your children and any family members you may leave behind. It will be a personal decision based on several factors, and you may be able to ensure a certain amount or percentage remains for inheritance.
When it comes to releasing cash from your home, the Home Reversion method is the least flexible. This will provide you or you and your partner with a cash lump sum in the immediacy. Or for better planning, future capital sums as you decide. You will simply receive a lifetime tenancy to remain in the property until you, or both you and your partner pass on or move into a retirement home. Any remaining money after the Equity release lender is paid back, will go to any named beneficiaries in the will.
A Lifetime Mortgage is the most adaptive. Since its inception it has morphed into many guises. Enhanced, drawdown, interest only and voluntary. As the old slogan goes, it's the mortgage that likes to say yes. It will say yes multiple times no matter which way you phrase it. It allows you to protect the final sum that the lender gets repaid. You can offset the final amount with monthly payments, ensure a reserve of the final home sale is kept for beneficiaries only. It is basically a mortgage where you never need to make a payment and 'polite repossession' is the final outcome upon death, with any money left over going to beneficiaries.
There are of course Equity release alternatives. We have tried to keep the subject of equity release separate from funeral planning and payment while explaining which aspect does what. Primarily because it is not always correct to spend the £1000 + fees on a solicitor, arrangement fee and other costs to simply pay for a funeral. Though it would certainly not be wrong to do so when wishing to provide peace of mind and a prepaid funeral to help your children and family through the process.
An Equity Release advisor will be able to provide you with more details on the costs involved and how you can achieve your aim of complete funeral preparation. Much like the funeral cost calculator, there's also an Equity Release calculator too. Enabling you to make comparisons and with better judgement. Whether you are looking into prepaid funeral schemes, buying outright now or using Equity release to fund a funeral, we stand ready to help you make that decision.
Much like applying for a mortgage, there are fees involved. Upwards of £1000 is normal. These will include costs for a Survey / Valuation report, Legal fees and Solicitor costs, Mortgage application and or an arrangement fee with any financial advice paid on top too.
While you have all the money and in general it is the bank or lender looking to gain future possession of your property by paying for it advance, the process is much the same as a mortgage application. They need to assess property value, do surveys, adjust for potential market forces. All this can take six to twelve weeks for a lifetime mortgage or two months for an equity release plan.
It is really calculated on a per property basis. The entire property value should have a minimum market price of £70,000, and any amount will be determined from a share of the difference after indebted considerations such as existing mortgage or loans are removed. These limits can change.