Can You Pay Back Equity Release Early?

Yes, it may be possible to repay some or all of an equity release lifetime mortgage early. However, the repayment options available and whether any charges apply will depend on the terms of your particular plan.

One of the attractions of modern lifetime mortgages is that many offer greater repayment flexibility than older equity release products. You may be able to make voluntary repayments to reduce the amount owed, pay some or all of the interest as it accrues, or repay the lifetime mortgage completely.

However, repaying a lifetime mortgage in full can sometimes result in an early repayment charge, so it is important to check the terms of your plan before making a significant repayment.

Do You Have to Make Monthly Payments on Equity Release?

With many lifetime mortgages, you do not have to make regular monthly repayments.

Instead, interest can be added to the amount borrowed and repaid when the lifetime mortgage ends, usually when the last borrower dies or moves permanently into long-term care.

However, some lifetime mortgages allow voluntary repayments during the life of the plan. There are also products where payments may form part of the agreed terms.

The exact repayment options will therefore depend on the lifetime mortgage you choose.

Can I Make Voluntary Payments on a Lifetime Mortgage?

Many modern lifetime mortgages allow voluntary repayments.

Depending on the product, you may be able to repay some of the interest, some of the original capital or a combination of the two.

Making voluntary repayments can reduce the amount on which future interest is calculated and therefore help control the growth of the outstanding balance.

This can be particularly important with a lifetime mortgage because if interest is allowed to roll up, compound interest means future interest can be charged on both the original borrowing and interest already added.

How Much Can I Repay Without a Penalty?

The amount you can repay without incurring an early repayment charge depends on the individual lifetime mortgage.

Providers can have different limits and conditions, so you should not assume that the repayment allowance on one equity release product will apply to another.

Before taking out a lifetime mortgage, your adviser should explain the repayment facilities available and any restrictions or charges that could apply.

If you already have equity release and are considering making a repayment, check your original mortgage documentation or contact your provider or adviser before transferring any money.

Can I Pay Off My Lifetime Mortgage Completely?

It may be possible to repay a lifetime mortgage in full while you are still living in your home.

However, this is where early repayment charges can become particularly important.

Lifetime mortgages are designed as long-term products and some providers may charge you for repaying the borrowing earlier than anticipated.

The way an early repayment charge is calculated varies between products. The potential charge and the circumstances in which it applies should be set out in your mortgage documentation.

Before deciding to repay the entire lifetime mortgage, it is therefore important to request a current redemption figure from your provider showing exactly how much would be required to clear the borrowing.

What Are Equity Release Early Repayment Charges?

An early repayment charge is a fee that may become payable if you repay some or all of your lifetime mortgage outside the penalty-free repayment provisions of your plan.

The rules vary considerably between products.

Some plans may use fixed early repayment charges that reduce over a specified period, while other products may calculate charges differently.

There can also be circumstances where an early repayment charge is reduced or waived, depending on the terms of the plan.

For this reason, early repayment charges should be considered when choosing an equity release mortgage, even if you do not currently expect to repay it early.

Why Would You Repay Equity Release Early?

There are several reasons why somebody might consider reducing or repaying their lifetime mortgage.

These could include:

* Receiving an inheritance or other lump sum
* Selling another asset
* Wanting to reduce the interest accumulating on the mortgage
* Wanting to preserve more of the property’s value for beneficiaries
* Changes in personal or family circumstances
* Moving home
* Deciding that another financial arrangement may now be more appropriate

Your circumstances may be very different several years after taking out the original lifetime mortgage, which makes repayment flexibility an important feature to consider.

Can Paying the Interest Reduce the Cost of Equity Release?

Potentially, yes.

If your lifetime mortgage allows voluntary repayments, paying some or all of the interest can reduce the effect of compound interest.

For example, if all the interest is allowed to roll up, it is added to the outstanding balance and future interest can then be charged on the increased amount.

Making permitted repayments can therefore help reduce the rate at which the outstanding balance grows.

However, whether making repayments is appropriate will depend on your finances and the terms of your lifetime mortgage. You should also consider your future income and expenditure before committing money that you may need later.

What Happens if I Move Home?

Taking out equity release does not necessarily mean you can never move home.

Lifetime mortgage products meeting Equity Release Council standards provide the ability to move the mortgage to another suitable property, subject to the provider’s lending criteria and the new property being acceptable security.

Depending on the value and suitability of the new property, it may sometimes be necessary to repay part of the lifetime mortgage when moving.

The precise rules will depend on your provider and plan, so you should speak to your provider or adviser before putting your property on the market.

What Happens if I Move Permanently Into Long-Term Care?

A lifetime mortgage will normally become repayable when the final borrower dies or moves permanently into long-term care.

For joint borrowers, the mortgage would not normally become repayable simply because one borrower moves into care while the other continues to live in the property, subject to the terms of the plan.

The precise provisions should always be checked against your individual mortgage agreement.

Should I Repay My Equity Release Mortgage Early?

Whether repaying some or all of a lifetime mortgage makes financial sense depends on your circumstances.

Before making a decision, consider:

* The outstanding mortgage balance
* Any early repayment charge
* The interest rate on the lifetime mortgage
* How much you are considering repaying
* Your future income and cash requirements
* The potential effect on your estate
* Whether alternative uses of the money should be considered

If you are considering a substantial repayment or redeeming the mortgage completely, getting advice can help you understand the costs and implications before proceeding.

Get Advice About Lifetime Mortgage Repayments

Modern lifetime mortgages can offer considerably more repayment flexibility than many people realise, but the rules and potential charges vary between providers and products.

Mortgage Force can help you understand how lifetime mortgage repayments work, the features available on different equity release plans and the potential long-term effect of interest on the amount you owe.

If you already have a lifetime mortgage and are considering making a significant repayment, it is important to check the specific terms of your existing plan and obtain an up-to-date redemption figure where appropriate.

Visit our Equity Release Mortgages guide to learn more about lifetime mortgages, interest rates, how much you may be able to release and the potential effect of equity release on your estate.