Can you pay back equity release early?

Paying back equity release early is possible but there may be fees

For all equity release plans, repayment is due after the last borrower dies or goes into permanent long-term care. But if your situation alters or you have a change of heart, what options do you have to pay back equity release ahead of time?

Can you pay back equity release early?

Yes, you can. With lifetime mortgages that meet the standards of the Equity Release Council, you can choose to repay all or some of the loan early. However early repayment charges may apply.

Most providers allow you to make partial repayments without charge up to a percentage of the amount you borrowed. The percentage amount varies by provider but could be up to 10%.

How do you pay back equity release?

How equity release is paid back depends on whether your plan is a lifetime mortgage (a loan secured against your home), or a home reversion plan.

Lifetime mortgage: with some lifetime mortgages you have the flexibility to pay some or all of the monthly interest, and where all interest is repaid only the capital you borrowed remains to be repaid to the provider. With some plans you might have the option to pay back more than the total interest amount, which lets you reduce the capital you owe, subject to any charges that apply. If you would like to pay back the whole amount there may be early repayment charges that need to be paid.

The Saga Lifetime Mortgage, provided by Just, offers you the choice to pay all or part of your monthly interest. This reduces the overall cost of the lifetime mortgage loan and means you may also benefit from a lower compound interest rate.

Home Reversion Plans: you will need to buy back the portion of your house that you have sold to the provider. This is likely to cost you more than the provider paid for the share, as you’ll need to buy back at the current market value.

What are early repayment charges on equity release?

An early repayment charge (ERC) is an additional fee that may be charged by an equity release provider when you make repayments that were originally unplanned. These charges are designed to cover the potential loss of income for the provider if the capital or interest owed is reduced.

How much are early repayment charges on equity release?

Equity release ERCs vary between providers and products, so you can find out the details by checking your documents or by speaking with your provider.

Once you understand how these are calculated, you should know if any charges are likely to be incurred for payments you are planning to make. The different types of early repayment charges you may get are:

• Fixed-rate ERC: you know in advance exactly how much it will cost to repay early.
• Variable-rate ERC: payments may vary and are worked out as a percentage of the initial amount borrowed. How much you would be charged will be written into your agreement when you take out the equity release.
• Initial borrowing vs. balance: some providers work out ERCs on the initial borrowing, others on the remaining balance. This means charges can vary considerably.

It's important that when you take out your equity release plan you understand all the facts, including how equity release early repayment charges are calculated for your specific plan.

When will equity release early repayment charges apply?

There will be no early repayment charges when the plan ends following the death or move into permanent long-term care of the last borrower. There may also be some exemptions which means no charges will be made. Some of the common exemptions are:

• Overpayments: some providers will allow a certain amount of overpayment or partial repayment of the loan, typically up to 10% each year.
• Moving your plan to a new property: with some providers, this is an option and might not mean you have to pay back your loan in full. They will need to approve the move of the plan and may request that some of the loan is repaid, depending on your new property value.
• Downsizing protection: this enables you to pay back your equity release loan without penalty if you move to a smaller property and no longer need the equity release.
• Significant event exemption: if you have a joint equity release plan, this lets you repay the loan when the first borrower dies or goes into long-term care, without early repayment charges.

There may be some products or providers that don’t have any early repayment charges, you can find these details by checking your documents or by speaking with your provider.  

Exemptions from early repayment charges vary between providers.

If an early repayment charge doesn't apply, interest will still be charged up to the early repayment date (pro-rata), unless there are special interest-free period guarantees. 

The Saga Lifetime Mortgage, provided by Just, comes with a Money Back Guarantee for the first six months following completion. So if your circumstances change you can repay the money without interest or charges. To be eligible for this guarantee your initial advance must not exceed £150,000. There are other eligibility terms that you need to be aware of and these can be read in the terms and conditions.
(A lifetime mortgage is a loan secured against your home).

If you want to find out more about equity release and early repayments, book a no-obligation appointment  or request a callback from the Saga Equity Release team.

At Saga we partner with HUB Financial Solutions Limited to provide Saga Equity Release – a no-obligation, no-pressure service dedicated to finding out if equity release is right for you. You’ll need to pay an advice fee of £799 if you decide to proceed and take out a Saga Lifetime Mortgage.