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Equity release early repayment charges

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Oct 24, 2022

Equity release early repayment charges – how to pay off equity release early in the UK

There is a way to get out of debt if you have an equity transfer plan by simply making early repayments.

Equity release lenders have different rules about how early you can pay back equity release.

Some may impose limits on the amount they will allow you to repay, and others may charge additional early repayment charges.

This guide will cover everything you need about early equity release repayments. It includes how they work, what they cost, and how a broker could help.

Click the link below to discuss equity release plans with a specialist equity release broker who can help you get out of your equity release early.

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Are you able to pay your equity release early?

Yes, you can make early repayment for your loan if you have a lifetime mortgage, and this is the most popular equity release product in the UK.

These loans are not due until you die or are enrolled in long-term care, of which there are several options if you decide to make early payments.

You might be able to pay the interest on the loan. You could also make partial payments to lower the total loan amount, which is usually limited to 10% per year.

You may be able to repay the entire loan in certain situations. However, this will typically result in a high early repayment fee. It is wise to consult an equity release broker before you make any decisions.

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Why would you want to repay equity release early?

As we have already mentioned, there is no need to make early repayments. You might reduce your loan amount if you have cash left over from a property sale or inheritance or if your pension fund is insufficient, as this will allow you to leave a larger inheritance.

Another possibility is that you have a change of heart and wish to purchase a new primary residence without taking on debt.

What is the cost of this?

Your lender might ask you to pay an early repayment fee if you choose to repay your equity release loan earlier than expected. This is to cover the loss they will suffer if you repay your equity release loan earlier than anticipated.

Different lenders have different rules regarding early repayment fees, so it is important to understand your lender’s terms in advance.

What are equity release early repayment fees?

Some lenders may charge a fixed rate that can vary depending on how long the loan has been in force. They may charge 7% for the first five years, then 5% for years 6-8, and then nothing after year 9.

You may be able to repay a certain amount annually through other lenders, such as 10%, without paying any fees.

These lenders assign a gilt (government-issued security) to your plan from day one. They then levy a fee based on how much the gilt yield has fallen/risen on the day you request an early repayment. A fee will be charged for any fall in the gilt yield, and there is no penalty if the yield has increased or remained unchanged.

Noting that lenders may base an early repayment charge on the amount borrowed initially, others will establish it on the outstanding balance.

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How can you repay your loan early?

It should not be difficult to make an early repayment. These are the three steps that will ensure your process runs smoothly.

Step 1: Review the terms and conditions of your plan

Different lenders have different rules about how much you can repay early and how much you will pay. You can avoid unpleasant surprises and make it financially feasible to make early repayments, so contact your lender if you are unsure of the details.

Step 2: Speak to a broker.

Early repayment fees can be complicated, so getting help from an equity-released expert is a bright idea. They’ll be able to calculate how much you will need to pay and give you customised advice about whether it’s worth it.

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Step 3: Set up the payment

Once you have spoken with a broker, the last step is to set up the payment. You can do this via a one-off direct debit, regular standing order, cheque or bank transfer. Find out which payment methods are accepted by your lender.

What is downsizing protection?

Lenders offer this protection and allow you to repay your equity release loan entirely without any early repayment fees.

You don’t have to move to a smaller house to benefit from downsizing protection.

However, there are usually restrictions on this type of protection. Lenders typically require you to hold your loan for at least five years.

What lenders allow you to repay your loan early?

All lenders allow you to make early repayments even if you are on interest-only equity release products.

However, all equity release industry bodies, including the Equity Release Council (ERC), have made it mandatory for customers who take out life mortgages to make partial payments without penalty since 28 March 2022.

As long as your loan approval is ERC, you can repay the loan at least partially early without any early repayment charges.

This new rule applies only to applications received after 28 March 22.

Get in touch with an expert on equity release today

It is challenging to choose to pay your equity release loan early. It’s worth speaking with an experienced mortgage broker to help you make the right decisions.

We only work with brokers with a track record of helping equity-release borrowers make early repayments. All of our brokers are regulated by the Financial Conduct Authority.

Click the link below to discuss equity release plans and lifetime mortgages with our specialist brokers:

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How can I avoid paying early repayment fees?

In certain situations, early repayment fees won’t apply depending on the type of lifetime mortgage that you have taken out. For example, payments must be made after the death or long-term care of the borrower. Your lender may also allow you to make voluntary, non-penalty repayments up until a certain amount.

If you move, you could avoid the early repayment fee and the loan will not be repaid, but you won’t have to.

This could result in a significant charge so you can transfer your plan as long as your new property meets the lender’s requirements.

Are early repayment fees worth it?

Early repayment fees can be expensive, so it is good to consult an equity release advisor to review your situation and decide if early repayments are suitable for you. 

How do I start getting out of my equity release without paying charges?

Start your application to get out of your equity release early below:

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