Using Your Family Home to Fund Care
It is a sad fact of modern life that more and more elderly or infirm people are finding themselves in a situation where they need to use their family home in order to help pay the costs of the care they need.
Your home may be your only asset, but selling the property is not, however, the only option. Before you consider selling the family home, you should consider some of the alternative ways in which homeowners can find the money needed to pay the additional care fees that the state is unwilling to provide for.
Many people find themselves in the position where they need to use their family home in order to help pay the costs of care. There is a lot more to funding care home fees than simply selling a property and using the cash to pay the extra fees that are not covered by the government.
Unlocking the Equity Within Your HomeIn most cases, the family home is not wholly owned by the person requiring care. It could, for example, be jointly owned by a couple, which makes the act of selling the home to pay for health care more problematic. After all, it will probably mean that it will be necessary to preserve the value of the property as much as possible, to provide something for the surviving spouse or children.
Equity ReleaseIn the past two decades, as health care has grown more expensive and house values have increased, equity release mortgages have been increasingly popular. Now, most major lenders offer homeowners the opportunity the arrange borrowings against the total equity available from the property, which can be given up in exchange for a regular income or a lump sum payment.
For those people interested in financial the cost of a care home, the most likely equity release scheme will be one that pays a regular income. A word of warning, however. Just because such schemes are popular and provided by highly respected mortgage lenders and banks, the terms of the deal they offer you may not be value for money.
Recent investigations have drawn the conclusion that many of these equity release schemes are grossly weighted in favour of the money lender, and offer the home owner something of a raw deal. Indeed, many consumers have complained about losing most or all of the equity built up in their home over a number of years, in order to receive a relatively small return.
As with every financial agreement, always make sure that you take independent financial advice and read the small print.
Annuity PurchasesAnyone looking for more long-term security might wish to consider combining equity release with a life-time annuity. With this type of annuity, the lump sum paid on release can be used to purchase an annuity to provide a regular income for the annuity holder for the rest of their lifetime.
Making the Property a GiftMany people aim to avoid inheritance tax by gifting the family home to relatives. The hope with this is that the family home will no longer be taken into account when the council is means-testing a person’s assets. Estate planning is of course not an exact science. There’s no guarantee that the person requiring care will die first.
Income from PropertyAnother option available to homeowners is to attempt to derive an income from the property, for example through renting the property to a tenant or lodger. Any income that is generated would, however, then be put to use as part of the calculation be used as part of the calculations when determining how much an individual should pay towards their own care. This is unlikely to be a problem, as the entire reason for this type of project would be to pay for the care home fees.
There is also another option available to homeowners offered by local councils: deferred payments. Councils can suggest to homeowners that the cost of care due to the council, based on the value of the property, is deferred until the date of death or the sale of the property. In effect, this is an interest free loan from the council and can be a great way of allowing an individual to maintain ownership of their property. This, in turn, can be an important motivational tool when dealing with long- term illness and the need for on-going residential care.