In this brief guide, we are going to answer the question “Can you repay equity release early?”.
What are Equity release products?
Equity release products are products which are available to those who are above the age of 55. An equity release product will allow you to release some of the equity in your home. You will not need to make any monthly mortgage repayments(Although you can choose to make monthly mortgage repayments) but can then repay the equity release in full when you die or move into a care home.
This is done by the equity release lender by selling your property once you die or move into long term care. You can choose to ringfence some of the equity in your home and pass this on to your beneficiaries through your estate. In any case, the equity release lender will pay your estate whatever is left after they have recovered the balance owed to them through the sale of your home.
If your beneficiaries want to keep the house then they could pay off the balance due to the equity release provider once the equity release comes to an end.
Can you repay equity release early?
Yes, you can repay equity release early but most Equity Release providers will attach an early repayment charge on the equity release product which means that if you want to repay the equity release early you will have to incur this cost. There are some equity release products which you can repay early with no charges.
If you are considering repaying your equity release early then you may want to consider peaking to a mortgage broker to understand how this could potentially affect your finances and what your options are. By looking at your key facts illustration document you will be able to see what the early repayment charges on your equity release product is.
How to figure out your equity release early repayment charge?
As mentioned above you will need to figure out what your equity release providers early repayment charge is then you will need to check with the equity release lender or check your key facts illustration document.
Most equity release lenders will impose an equity release charge based on a percentage of the outstanding balance or based on the initial amount borrowed through the equity release product.
An equity release lender may also charge a tier-based early repayment charge. Thus means the early repayment charge will reduce as the equity release term is reduced.
E.g in Year one the equity release charge on your equity release product could be 5% and in year 5 it could be 2.5% etc In the 6th year it could be 0%.
There are more complex ways in which equity release lenders work out what your early repayment charge could be and hence if you are considering repaying your equity release product you should inquire with your provider on what the early repayment charge may be.
There is no case where you won’t be allowed to repay your equity release product early. It’s simply a question of the cost.
Can you get an equity release which you repay early?
Yes, there are now many equity release products which allow you to repay them early through regular monthly repayments or by repaying up to a certain amount of the original balance each year. Some lifetime mortgages now allow you to make up to 10% of the original balance borrowed as repayments each year though lump-sum repayments or as monthly mortgage repayments.
These repayments are voluntary and hence you will not incur a fee if you make repayments some months but do not make repayments on other months.
By making these repayments early you could potentially reduce the amount of interest you have to pay and hence the amount of equity you may lose when the equity release provider will have to recover their balance.
Gilt-yield linked penalties are also a form of charge which some equity release providers may place on your equity release product. These equity release products will have a charge which is linked to gilt yields.
If the rate has gone down between the time you took out the plan and the day on which you try to repay, a penalty will usually apply.
If you are looking for an equity release product which you can repay early you should speak with a mortgage broker to see which kind of products meet this requirement.
Are there equity release products with no early repayment charges?
Yes, there are equity release products with no early repayment charges and this means you won’t have to pay any extra charges if you want to repay the equity release early. These equity release products will have some caveats such as not being able to benefit from having no early repayment charges until you have reached a certain age or in some cases some equity release providers will simply remove the early repayment charges after the first few years of the term.
What is downsizing protection?
Downsizing protection is a feature which some lenders have. It allows you to move into a smaller home within 5 years and use the equity in your home to fund this purchase whilst simultaneously clearing the debt on your existing equity release product with your new mortgage.
For example, if you sell your home (which currently has an equity release debt) for £500,000. You can use the £500,000 to clear your equity release debt and use the equity left as a mortgage deposit or full purchase price for another smaller home.
No early repayment fees will apply if you utilise this option.
Using a mortgage broker for your equity release
If you are considering getting an equity release product or if you want to repay your current equity release product early then you should consider using a mortgage broker who has experience with equity release products.
You can use an equity release calculator to see what an equity release could look like for you.
You should remember that equity release products are made to last a lifetime which can be much longer than a standard mortgage term, this means the early repayment charges placed on them could be much higher than your standard mortgage.
If you are considering getting an equity release products but have a feeling you will want to repay it early then this is something you may want to discuss with a mortgage broker.
If you have a home reversion plan which you want to come out of then you will usually have to buy back the share of the home you sold. This could be very expensive and you may receive less than you sold the share of your home for.
You’ll usually have to buy it back for the current sale price on the open market.
FAQs: can you repay equity release early
Can you pay off a lifetime mortgage early?
You are not required to pay off your lifetime mortgage early but some lifetime mortgage lenders will now place early repayment charges which could prove to be a huge financial stumbling block.
Do you have to pay back equity release?
Yes, you will have to pay back the equity release when you die or move into long term care. This is done by the mortgage lender selling your home to recover the balance owed to them.
In this brief guide, we answered the question “Can you repay equity release early?”.If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.