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Equity release repayment examples

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By Clare Yates • 4th August 2023 • 5 min read

Different ways you might repay your equity release

Despite equity release typically being a lifetime commitment, it can be repaid early. Our equity release repayment examples will show you some of the circumstances where this might be appropriate.

To help you explore equity release repayment examples and the potential implications for ending a plan early, we’ll discuss the following:

  • How does equity release work?
  • Can I repay equity release early?
  • Equity release repayment examples.
  • When a homeowner passes away.
  • When you move into long-term care.
  • Not selling the family home when your plan ends.
  • Paying your plan off early.
  • Making regular voluntary repayments on your plan.
  • Interest only plans.
  • Equity release early repayment charges.
  • How to find specialist equity release advice.

We hope these equity release repayment examples help your research into your financial options. To speak to one of our selected advisers about unlocking tax-free cash from your home, call our friendly team on 0808 178 3055, or request a call back. 

How does equity release work?

Equity release is a financial tool for UK homeowners aged 55+ looking to raise some extra funds in later life. It allows you to release some of the tax-free money – your equity – from your home, without having to make any mandatory monthly repayments.

Popular reasons for equity release include paying off the mortgage, gifting to family members and making home and garden improvements. 

Whilst there are many flexible options and features to choose from, there are two main types of equity release plan. These are lifetime mortgages and home reversion plans. With both of them, the equity release provider is typically paid back through the sale of your home when you pass away or move into long-term care.

Not 55 yet? Read our article: “How to unlock equity if you are under 55.”

Want to know how much you could unlock from your home? Use our free equity release calculator now!

Can I repay equity release early?

Yes, you can repay equity release early if you wish, though you may incur costly early repayment charges depending on the circumstances. We talk more about early repayment charges later on in this guide as they are important to understand.

Usually your plan ends when you pass away or move into long-term care. At this point you or your estate can repay your plan from the sale of your home. However, there are other ways that a plan can be repaid, some examples of which you can read in this guide.

As equity release is typically a lifelong commitment, it is essential you seek advice before making any decisions. Our selected advisers will be able to explain all your options, provide all the quotes you need and arrange everything for you if you choose to go ahead. Call 0808 178 3055 to arrange an appointment with an adviser today.

Equity release early repayment charges

When exploring your equity release repayment options, you should familiarise yourself with equity release early repayment charges. As with many other financial products, equity release plans usually have early repayment charges built into them and they can be costly. 

However there are exemptions, so you or your estate may not incur charges  when your loan plus interest is eventually repaid. For instance, exemptions from these charges typically include the following scenarios:

  • Repayment takes place after your death or the death of the remaining borrower.
  • You or the remaining borrower move into long-term care.
  • The fixed early repayment charge term has expired.
  • You sell the property and transfer the mortgage to another suitable property.

There are also plans available with special features that allow you to repay your loan early without incurring any penalties. These include:

Compassionate Early Repayment Charges. Also known as Significant Life Event Exemption, this allows you to repay your loan without penalty up to three years of your partner passing away or moving into long-term care.

Downsizing Protection. This gives you the freedom to downsize your home and repay your loan in full without incurring any penalties, once you have had your plan for a minimum of five years. 

If you are considering equity release and require a plan that gives you the above flexibility for early repayment, make sure you speak to our selected equity release advisers. 

By coming to Equity Release Wise, you can find a plan that prioritises the ability to end your plan early without incurring any equity release early repayment charges. For peace of mind, our selected advisers will take the time to understand your specific needs before searching for the best plan for you. They can also inform you if you could possibly access equity release with no early repayment charges at all.

Equity release repayment examples

Despite equity release usually being a lifetime commitment, there are in fact a number of different scenarios where you or your estate might repay your loan plus interest. 

Here are some equity release repayment examples to help you understand why or how repayment can take place during or after your lifetime.

When a homeowner passes away

Perhaps the most common of equity release repayment examples is death of the homeowner/s. With both a lifetime mortgage and a home reversion plan, once the last homeowner passes away then the plan comes to an end. At this point your home is typically put up for sale.

Example: Mr Chambers lives alone after the passing of his wife five years ago. When he passes away, his home is sold by his sons. They settle his equity release loan plus interest, for which there is no early repayment charge to pay. The remaining money is then divided according to his will.

Read more about this in our article: “What happens to equity release when you die?”

When you move into long-term care

Another reason why your plan would naturally end is when the last remaining homeowner moves into long-term care. If this happens then your home is put up for sale in order for the loan plus interest to be repaid.

Example: Mrs Holden lives on her own as her husband is in a nursing home. Mrs Holden’s dementia gradually worsens and the family make the decision to find her a suitable care home. With both homeowners now living in long-term care, the home is put up for sale and the equity release plan is repaid.

Not selling the family home when your plan ends

Your home doesn’t have to be sold in order for your equity release plan to be repaid. If you pass away or move into long-term care then your family may use a life insurance payout or another cash facility to repay your plan. Some families choose to do this to keep the house in the family, or to let it out as an investment property. 

Example: Ian Smith passes away with a large life insurance policy in place. His home has been in the family for generations, so his daughter uses the insurance money to pay off the equity release loan and interest in order to keep his home. 

Paying your plan off early 

Sometimes homeowners choose to repay their equity release plan early. You might do this yourself if you come into some money during your lifetime or you choose to downsize your home to a less expensive property. 

The main issue with this option is that you risk incurring potentially large early repayment charges. You will need to weigh this up against the interest that you will save by ending your plan early. 

Remember though, some lenders will waive early repayment charges in certain scenarios.

Example 1: Mr and Mrs Green decide that their 4-bedroom detached home is too big for them now. They find the perfect 2-bed bungalow and sell their home to buy it, paying off their equity release loan at the same time. There are no early repayment charges to pay as their plan has Downsizing Protection built in. In this case, their lender lets them downsize penalty-free within five years of arranging their plan.

Example 2: Mrs Preston comes into a large cash lump sum from a life insurance policy when her husband passes away. She decides to downsize and pay off her equity release loan at the same time. She finds out that her plan has Significant Life Event Exemption, so she doesn’t have to pay ERCs by downsizing within three years of the death of her spouse.

Example 3: Mr Jenkins inherits a large lump sum of money from his elderly parents. He decides to pay off his equity release plan to protect his own children’s inheritance. His equity release plan is still within its 15-year fixed term for early repayment charges, so he will incur charges. As he only has two years left to go, the penalty is just 1% of his overall loan so he decides to go ahead.

Read more about repaying your plan early and early repayment charges in our article: “Can you pay back equity release early?”

Making regular voluntary repayments on your plan

Not all repayment options involve ending your plan early. You may choose to pay off just some of your loan to minimise the interest that accrues on it.

Some lenders will allow you to repay a percentage of your overall loan every year. For instance, Aviva and Canada Life both allow you to repay up to 10% of your overall loan in each 12 month period. 

Example: Mrs Chadwick chooses to make voluntary repayments on her plan every couple of years to protect her home’s remaining equity from being eroded by interest. When her plan comes to an end, her children have a smaller equity release loan to pay from the sale of her home.

Interest-only plans

The last of our equity release repayment examples, this option is ideal for those who want to prevent or minimise the effect of interest on your loan. With an interest-only lifetime mortgage, you agree to pay off the interest each month or year so your loan never increases.

You can choose to stop making these voluntary interest payments at any point. If you do this then your plan will switch to a standard roll-up plan and the compound interest will begin to add to your loan each month.

Example: Mr McColl chooses an interest-only equity release plan to pay off the capital on his interest-only mortgage when the term ends. He keeps up with the monthly interest payments for ten years and then decides to let his plan switch to a standard roll-up so he can enjoy a bigger disposable income each month. 

How to find specialist equity release advice

After reading this article, your next point of call is to speak to a specialist who can answer your questions and check your eligibility.

Don’t miss out on your opportunity to receive equity release guidance and advice from one of our selected advisers. Remember, all the information and quotations our selected advisers give you is entirely free and without obligation. You will only be charged a fee for advice if you choose to go ahead with a plan, though this can be paid from the money you unlock. 

Want to know more? Get a personalised quotation for equity release with repayment options by calling 0808 178 3055. Or request a free callback here for a time that is convenient for you.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn

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