Yes. You can repay an equity release plan early. Whether it costs you anything to do so depends on your lender, your plan and your timing.
That is why the early repayment terms deserve as much attention as the rate when you first take a plan out. Here is how it works in principle, and what to do if you already have a plan.
How early repayment charges work
An early repayment charge is a charge some lenders apply if you repay your plan sooner than expected. A lifetime mortgage is designed to run until the last borrower dies or moves permanently into long term care. Repaying it before then is what counts as early.
On lifetime mortgages, early repayment charges typically run for somewhere between 5 and 15 years from the start of the plan. How the charge is worked out is set by the lender and written into your plan's terms. The charges vary considerably between lenders, so there is no single answer to "how much will it cost me to get out?" other than your own paperwork.
That is why the time to understand them is before you commit, not when you want to leave. If you think you may want to repay within a few years, say so at the start. We do not recommend lifetime mortgages as short-term options, although we have helped some clients with shorter terms where it was the correct advice for them.
On a retirement interest only mortgage the picture is different. Early repayment charges are typically lower and shorter, and usually only last as long as the fixed rate in place.
When a charge may not apply
Some situations are treated differently. Whether they apply to you depends on your plan, so treat this as what to look for in your own terms rather than a promise.
After a partner dies or moves into care. For joint applicants, some plans include an option to repay the loan without penalty within three years following the death or long term care of a partner. It gives the surviving partner some flexibility at the most difficult time.
Voluntary payments. Paying some of the balance or interest off as you go is different from repaying the whole plan early. More on that below.
Moving house. Lifetime mortgages are generally portable, which means you may be able to transfer your mortgage to a new property, subject to the lender's terms and the new property meeting its lending criteria. If you move somewhere worth less, you may need to repay part of the loan to meet the lender's required loan to value limits. An early repayment charge may apply to any part you repay, depending on your plan's terms. Moving house with equity release explains this properly.
Voluntary partial repayments
This is the part plenty of people do not know about.
You do not have to repay the whole plan to reduce what you owe. The ability to make voluntary repayments without penalty is one of the Equity Release Council's standards for lifetime mortgages. Modern plans let you pay some or all of the interest, monthly or now and then, within the lender's terms.
Pay the interest in full and the balance does not grow. Pay part of it and it grows more slowly. Pay none and it rolls up, because the interest is charged on the interest already added.
The limits on how much you can pay, and how often, are set by the lender, so check your plan's terms before you make a large payment.
How do I get out of equity release?
Repay it in full. From savings, from another source, or by selling the property. You can sell your home with an equity release plan in place. The loan is repaid when the property is sold. Any early repayment charge in your terms may apply.
Move to a different plan. This means repaying your existing plan and taking out a new one, which is usually what people mean by switching.
Leave it in place and manage the cost. Making voluntary payments can slow or stop the balance growing without ending the plan at all.
When a review may be worth considering
Later life lending rates are not tied to the Bank of England base rate. They tend to track the 15 year gilt yield, because most of the money behind these products comes from pension funds. So the rates available in the market move over time, independently of the headlines.
A plan taken out some years ago may have been arranged in a different market from today's, and a review is a sensible way to find out whether anything has changed for you. It may be worth looking further where:
- your early repayment charge period has ended,
- your circumstances or goals have changed since you took the plan,
- you want features your current plan does not have.
When switching does not make sense
Often it does not, and you should be told that plainly.
Switching means repaying your current plan, so any early repayment charge still running may apply. A new plan also comes with its own costs: the lender's fees, the solicitor, and our advice fee if the new plan completes. And a new lifetime mortgage comes with its own terms, which typically include early repayment charges of their own.
If the costs of leaving and starting again outweigh what you would gain, staying where you are is the better answer. Sometimes the right answer is to do nothing at all. If your aim is simply to stop the balance growing, voluntary payments on your existing plan may do that without the cost of a new one.
Nobody can tell you in advance that switching will save you money. It depends on your plan, your balance, the charges and what is available for your case at the time.
What a plan review involves
A review starts with your current plan, not with a new product.
We look at your plan's specific terms, because conditions vary between lenders. That includes the early repayment charge and how long it runs, whether voluntary payments are allowed and within what limits, and any portability conditions. Your lender will confirm the current balance. If you are not sure who your lender is, the paperwork or the solicitor who handled the original plan will tell you.
We then go back to your goals, the same way we would on a new case: your short, medium and long term plans, your income and outgoings, and your savings and other assets. If a change looks worth considering, you get a written suitability report setting out the recommendation, the costs and the risks, and you can take all the time you need to review it.
If the answer is to leave things alone, we will tell you.
The things to weigh up
Any new or larger plan will reduce the value of your estate, and releasing money could affect your entitlement to means-tested benefits. On a lifetime mortgage where you make no payments, interest is added to the loan and compounds over time.
Every lifetime mortgage we arrange carries a no negative equity guarantee, so you and your family can never owe more than your home sells for. Is equity release safe covers the protections and the risks side by side.
Early repayment: common questions
Can I pay off my equity release plan early?
Yes. A lifetime mortgage can be repaid at any time. The lender may apply an early repayment charge, and on lifetime mortgages these typically run for somewhere between 5 and 15 years. The charges vary considerably between lenders, so your own plan's terms are the only reliable answer.
Are there any situations with no early repayment charge?
Some plans give joint applicants an option to repay without penalty within three years following the death or long term care of a partner. Voluntary payments within the lender's terms are also allowed without penalty on Equity Release Council approved lifetime mortgages. Whether either applies, and anything beyond that, depends on your plan's terms.
Can I pay some of it off without repaying the whole plan?
Yes. Modern lifetime mortgages let you pay some or all of the interest, monthly or now and then, with no penalty, within the lender's terms. Paying the interest in full stops the balance growing.
Can I switch my equity release to another provider?
It is possible, by repaying your current plan and taking out a new one. Whether it makes sense depends on any early repayment charge still running, the costs of the new plan and what is available for your case. Often it does not.
What does a plan review cost?
The first conversation is free. If a review leads to a new plan and it completes, our advice fee is a maximum of £1,495, payable only if your case completes. If you do not proceed, you pay us nothing.
Not sure how any of this applies to your own circumstances? Craig is happy to talk it through, free and with no obligation.
Talk it through with Craig
If you have a plan already and want to know where you stand, bring the paperwork and we will go through it with you.
Book a call with Craig or call 0113 403 5584.
