If you are thinking about taking out a Lifetime Mortgage, or any other form of equity release, you might be wondering can you pay off equity release and how can you do it. Our equity release specialists have gathered some information to get you started when considering paying off equity release.
Equity release allows homeowners to release tax-free cash stored in their home and receive a lump sum or irregular payments to boost their lifestyle or help fund a number of purchases. Many retirees consider equity release to aid them in stepping into their retirement with less financial stress, allowing them to enjoy their free time doing the things they love.
There are a few different ways to release the equity stored in your home. When considering equity release, an equity release adviser will talk you through the pros and cons, and help you understand the implications of equity release on your current circumstances.
Can you pay off equity release?
Some equity release products may allow you to make partial or full repayments, it’s important to understand what this might look like and which plan may suit you best if you are looking to make repayments.
When paying off lifetime mortgages, you’ll need to understand the terms and conditions of the agreement, whether you would like to pay off the entire loan or just the interest, and how you wish to do so.
Paying back a lifetime mortgage may come with early repayment charges (ERC’s) and rules regarding how much you can pay back so it’s imperative to check with your provider or equity release specialist to understand your product in detail before repaying any amount.
If you are looking to release equity and would like to pay back your equity release, our specialist advisers can help you find the most suitable product for your circumstances. Any potential early repayment charges will be fully explained before you take out a plan or repay an existing plan.
How can I pay off my equity release early?
If you are looking to pay off your lifetime mortgage early, there may be a few different payment options to choose from. You can choose to make one off payments, regular payments for interest-only products, or pay the loan off in full.
If your equity release plan allows for a full repayment of your loan, it’s important to check if you will be subject to early repayment charges which can be found in your mortgage offer document, because some plans allow you to repay with no early repayment charges, this is where expert advice is required.
When will I not be charged for early repayments?
If you already have a lifetime mortgage that was taken out after the 28th of March 2022 and meets the Equity Release Council Standards, you may be able to make partial repayments with no charge. You will need to speak to your plan provider or equity release adviser or specialist to find out if you are able to do this and how much you can pay with no charges.
Under certain circumstances you may not be charged for early repayments, however it’s always important to check your loan terms and speak to your adviser. If the lifetime mortgage you choose meets the equity release council standards, you may be able to make partial repayments up to a percentage of your loan amount with no charge. The amount you can repay, and conditions may vary based on your plan and provider. If you are moving house or downsizing, you may also be able to make early repayments without any additional charges.
Can you pay off a lifetime mortgage?
Lifetime mortgages are designed to be repaid in full when you pass away or move into long-term care. However, some newer lifetime mortgage products have the facility for you to make optional monthly payments, allowing you to pay off your interest monthly, which will ensure the balance of the loan stays the same. Lifetime mortgage also have an overpayment facility, the terms of this will be explained by your equity release adviser.
A lifetime mortgage product that is popular for repayments is the interest reward lifetime mortgage where you can be “rewarded” with a more competitive interest rate in return for committing to making monthly payments towards the interest of your loan.
The equity you release from a lifetime mortgage is loaned to you in a lump sum, or smaller lump sum and series of further draw downs of money, by an equity release lender, which is then paid back upon your passing or if you enter long-term care, usually from the sale of your house. The executors of your estate will inform your lender of your passing and organise the sale of the house or other assets to pay back your loan.
Can I pay off the interest reward lifetime mortgage?
Most equity release products are intended to be repaid once you pass away or move into long-term care. The Standard Life interest reward lifetime mortgage has been designed with flexibility in mind. By agreeing to make regular payments towards the interest, you are rewarded with a more favourable interest rate. With the option to make overpayments towards your loan, in addition to the regular payments towards your interest, you could pay off the whole loan if you wish.
If you wish to stop your payments at any time, the interest reward lifetime mortgage has the option to move to a standard lifetime mortgage. This means you will not be committing to making regular payments towards the interest, however in addition to the interest rolling up with compound interest, your interest rate will change to reflect the higher standard lifetime mortgage. Your lifetime mortgage and accrued interest will then be paid in the future when you pass away or move into long-term care.
Can you pay off a home reversion plan?
Home reversion plans are not designed to be repaid as you are selling part or all of your home to your provider.
When part, or all, of your home is initially purchased for your equity release plan, it is purchased at a discounted value. However, if you wish to buy back your home, you will need to pay market value for the share you wish to buy back.
It will be up to the provider that purchased your home as to whether you are able to buy it back, so it’s important to discuss with your equity release adviser if you are looking for an equity release plan that allows for payments.
What happens if you already have a residential mortgage?
If you want to release equity from your home using a Lifetime Mortgage, you will be required to pay back any existing mortgages with the lifetime mortgage funds that have been released, or your savings, investments or mixture of both. Any money left over after repaying your mortgage will be yours to use to spend however you would like.
At Bower, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding.
Bower Home Finance provides independent, impartial whole of market advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,695 be payable.
If you are considering equity release, we strongly recommend that you read our equity release page carefully and talk to one of our specialists before deciding if you wish to proceed.
To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668, request a call back, email us, or join our live chat you’ll find on our website.
Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.
