Are you allowed to repay equity release early?
Paul and Sandra contacted me to check whether there was potential for them to arrange a lifetime mortgage that had the option for them to repay the loan in the future without having to sell their home.
They were in the process of building their own home when the Covid-19 pandemic began; however, as they got closer to completion, their savings funds were running low, which wasn’t helped by the rising costs caused by the pandemic. Whilst the house was complete, there was still work to be done in the garden: the driveway, landscaping and double garage were all yet to be finished. When they approached the suppliers and tradespeople that had initially helped them in designing the layout of the garden, they were shocked at how much money would now be required to complete the work as a result of the price increases over the previous two years. Although they had sufficient savings to carry out the work, the projected costs were going to reach more than double what they’d originally budgeted for.
I met with them to discuss the different equity release options available, after which it became clear that, as with many others, their preconceptions on the subject were untrue. The biggest learning point for them both was that they would have the option to repay the equity release loan in the future, if they should wish to. Sandra knew she was going to inherit a large lump sum at some point in the future, and she therefore sought to know if she’d be allowed to use this money to repay the lifetime mortgage when the time came. In addition, she wished to find out if there would be any penalty charges for doing so, and if so, how much they would be.
Different lenders offer various early repayment charge structures. There are two main types of these, which are fixed early repayment charges and variable early repayment charges.
As Paul and Sandra were sure they wanted to repay the money someday, we chose a provider that was offering fixed early repayment charges. Consequently, we knew what the early repayment charges would be going forward before the lifetime mortgage had even begun.
| Years | Early Repayment Charge |
|---|---|
| 1 | 5% |
| 2 | 5% |
| 3 | 5% |
| 4 | 5% |
| 5 | 5% |
| 6 | 3% |
| 7 | 3% |
| 8 | 3% |
| 9 | 3% |
| 10 | 3% |
Those providers that offer early repayment charges typically calculate the penalty as a percentage rate that reduces each year over a specified term. In this instance, the provider offered Paul and Sandra the following options
In addition, they had the option to make overpayments towards the loan without incurring an early repayment charge if the amount paid each year was a maximum of 10% of the initial loan amount. As a result, they could make payments towards 100% of the interest and also repay some of the borrowed amount each year without incurring any penalty charges. Although this wasn’t something they were wanting to do, all lifetime mortgage providers offer this benefit, and it shows there’s multiple ways to repay a lifetime mortgage if this is important to you, as it was to Paul and Phyllis.
Lifetime mortgages are usually due to be repaid when the person/people who took them out pass away or move into long-term care. However, if you’re considering releasing equity from your home and you’d prefer to have the opportunity to repay the loan early if your circumstances allow you to, then it’s useful to know that the option is available!
If you’d like to discover more about repaying equity release early or whether fixed early repayment charges may be right for you and your circumstances, I’ll be very happy to have a chat with you, fill in the contact form below and I’ll be in touch.
To find out more about paying towards your equity release loan check out the video below
By loading the video, you agree to YouTube's privacy policy.
Learn more
