Paying back equity release early is possible but there may be fees
For all equity release plans, repayment is due when the last borrower dies or enters 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 pay back either some or all of the equity release you have borrowed early. If your equity release plan meets the standards of the Equity Release Council, you can make repayments at any time, although there may be additional fees involved.
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 between 10% and 40%.
How do you pay back equity release?
How equity release is paid back depends on whether your plan is a lifetime mortgage or a home reversion plan.
Lifetime mortgage: you have the flexibility to pay some of the interest or all the interest, so that only the capital you borrowed remains to be returned 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 you can do so, but there may be early repayment charges if this is an option.
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.
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Home reversion: 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?
Early repayment charges are additional fees 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 early repayment charges (ERC) 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 and how much time is left on your loan. 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're in possession of all the facts, including how equity release early repayment charges are calculated for your specific plan.
When don't equity release early repayment charges apply?
You won't be asked to pay an early repayment charge when the plan ends following the death or move into permanent long-term care of the last homeowner. There may also be some exemptions which mean 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 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, this lets you repay the loan when the first borrower dies or goes into long-term care, without early repayment charges.
Exemptions from early repayment charges vary between providers.
Saga Lifetime Mortgage, 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.
At Saga we partner with HUB Financial Solutions Limited to provide Saga Equity Release – a FREE advice, no-obligation, no-pressure service dedicated to finding out if equity release is the right choice for you.
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