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Can You Repay Equity Release Early?
The short answer is, yes, typically you can repay equity release early. Many modern lifetime mortgages offer flexible or partial repayment options - however, early repayment charges (ERCs) may apply, and they can be significant.
The ‘lifetime’ in ‘lifetime mortgage’ can create a belief that it’s impossible to pay back equity release early, but for many modern, flexible lifetime mortgage and other equity release products, that’s simply not the case.
Let us at Clifton Private Finance explain the fine details.
While you're here, you can check your eligibility for equity release products below, for free:
Table of Contents
- What is Equity Release?
- Why Repay Equity Release Early?
- Costs of Early Repayment (ERCs)
- Partial Equity Release Repayments
- Flexible Repayment Options
- Equity Release Case Studies
- Advice from Clifton Private Finance
What is Equity Release?
Designed for homeowners in their retirement, equity release, including its most common form, the lifetime mortgage, is a unique loan structure that uses your home to secure funds with no monthly repayment.
Equity release products are powerful options for homeowners aged 55 and older, providing a significant lump sum for use in your retirement. Whether it’s to help younger family members, to pay off existing debt, or just to secure a more relaxed time in later life, lifetime mortgages and other equity release options are often the best way to get the money tied up in your home without ever having to move.
However, sometimes you might want to close your equity release debt early, releasing your estate from the financial obligation.
Why Would You Want to Repay Equity Release Early?
Repaying your lifetime mortgage before it is due is uncommon, but not impossible - and it’s something that might come about for many reasons, including:
- Windfall - If you unexpectedly get a large sum of money, it may be financially beneficial to clear the equity release debt. This might be because you have inherited money from another family member or even because you won big on the lottery.
- Plan to move house or downsize - Depending on your equity release terms and the property you plan to move to, you may have the option of taking your existing lifetime mortgage with you, but you may also choose to repay it at this time.
- Desire to reduce interest - Every year, your lifetime mortgage will accrue interest. It may be that your financial situation has changed and you want to repay the equity release to avoid future interest.
- Change of mind - You don’t need to give a reason to your lender. Circumstances change, and you may have simply decided equity release no longer suits you.
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What Are the Costs of Repaying a Lifetime Mortgage Early?
Paying your equity release early will typically incur an Early Repayment Charge (ERC) in addition to repaying the full balance (principal plus interest) of the loan.
Early repayment charges will vary based on your lender, but tend to fall into the following categories:
- Fixed ERC - These are the easiest to understand and are a fixed percentage of the balance. Fixed ERCs tend to lower over time. For example, some are set to 10% in the first year, 9% in the second, 8% in the third and so on; others may be set to 7% for the first five years, and 4% for the next five. ERCs that taper in this way may last for only the first ten years of the lifetime mortgage, falling to zero beyond that.
- Variable Gilt-Linked ERCs - Another common way of calculating charges is to link them to government bond yields (known as gilt yields). This ties your ERCs to the wider economy. If the gilt yields have fallen between the time the equity release was taken and its repayment, then ERCs will be applied relative to that. However, if the gilt yields have risen, then no ERCs will be charged.
- No ERC - Some policies have a ‘no ERC’ term for certain conditions. This may be if one of the homeowners dies (allowing the surviving policy holder the option to repay with no penalty at the time), or through a downsizing exemption that allows for ERC-free repayment if downsizing.
Can You Repay Part of Your Equity Release?
Many modern equity release products are designed to facilitate partial repayment. Partial repayments can help to manage the interest and lower its eventual impact on the estate or even to gradually reduce the balance of the debt.
As with full repayment, partial repayments may be made due to unexpected financial changes, such as inheritance, windfalls, or through investment from other family members. Repaying part of your equity release will also help if you plan to clear it fully later on.
- Lifetime mortgages that offer partial repayment normally limit the size of that repayment to 10% to 12.5% of the original loan per year. In the majority of cases, partial repayment will not incur any early repayment charges.
It is essential to plan in advance if looking to make repayments on your equity release as it is not assumed to be part of most common lifetime mortgage arrangements. Working with Clifton Private Finance when choosing your lifetime mortgage will ensure you get the equity release that’s right for you.
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Flexible Equity Release Options for Repayment
While lifetime mortgages are the most common equity release product, the UK market for equity release is growing in flexibility. You may want to consider:
- Home Equity Line of Credit (HELOC) - Rather than a lump sum lifetime mortgage, a HELOC works more like a credit card with a limit based on the equity release. In the first years of a HELOC you are able to pay back the money you use with complete flexibility, reducing the interest generated and providing you with buying power without the full commitment of a lifetime mortgage.
- Drawdown Lifetime Mortgage - A drawdown lifetime mortgage provides the lump sum payment to you in stages, limiting the interest and providing you with the flexibility to draw more on your equity release if and when it is needed.
- Retirement Interest-Only (RIO) Mortgages - A cross between a lifetime mortgage and a standard interest-only mortgage, a RIO mortgage allows you to pay back the interest while you maintain a sufficient income, converting the balance to a lifetime mortgage when your circumstances change.
Equity Release Case Studies
Seeing how equity release has worked for others can be helpful. Here are some examples of situations where clients have successfully used different equity release options:
Advice and Assistance from Clifton Private Finance
One of the most important considerations if you want to repay equity release early is planning. While the option to make repayments exists with many lifetime mortgage products, by choosing a home equity release option at the beginning that has the flexibility you seek, you will face fewer ERCs and have the option of a clearer repayment structure.
We’re here for the long term, to provide whatever support you need at any stage of your equity release journey - even if that’s years down the line when you have a change of heart. Our experts have helped many clients who have been unsure of their equity release repayment options.
To understand how equity release can work for you, or to get advice on any current home equity release that you currently have, speak to a Clifton Private Finance specialist today - we’ll help you move forwards with confidence and security.
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