How equity release payments are saving customers ‘millions’

One year on: the success of the voluntary payment guarantee

Equity release customers have had the right to make penalty-free partial repayments on their plans for over a year now – with £102 million paid off this way already according to Equity Release Council figures.

The Council has reported that over 91,000 homeowners made 190,374 payments during 2022 alone – that’s a 48% increase on the previous year. In addition to reducing their overall loans, they’ll collectively save millions of pounds in future interest costs.

If you’ve been wondering “can I repay equity release early?” then this article is an ideal starting point. We’ll be exploring the option of partial payments and how you could potentially save thousands of pounds in interest; plus other ways you could pay back equity release early. 

Read on to understand more about:

• How does equity release work?
• What are equity release voluntary partial payments?
• The benefit of making voluntary partial payments.
• Equity release: can I pay it back with partial payments?
• Examples of providers’ partial payment limits.
• What other equity release payment options do I have?
• How to explore equity release further.

For further information about equity release, call us on 0808 178 3055 or request a call back and we’ll connect you with an adviser. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

How does equity release work?

If you are a homeowner aged 55+ you may be able to use equity release to boost your finances with tax-free cash borrowed from the value of your home.

A lifetime mortgage is the most popular type and enables you to continue to own 100% of your home. Exactly how much you can release will depend on factors including your age and property value.

Instead of monthly repayments, the loan plus interest is paid back through the sale of the home when you pass away or move into long-term care. However, you can make voluntary payments towards your plan if you wish to, with various options available which we will discuss further on.

Not yet 55? Read about how to release equity if you are under 55 here. 

To speak to one of our friendly selected advisers call 0808 178 3055 or request a call back today.

What are equity release voluntary partial payments?

If you choose an equity release plan from a member of the Equity Release Council, you can make guaranteed penalty-free partial payments towards some or all of the monthly interest. 

Some plans go further and allow you to repay a percentage of the overall loan each year, typically up to 10% of the loan in a 12 month period. Some providers allow you to pay off a larger percentage of 20% or even 40% each year. We have found some examples of these for you to compare later on.

There are other Equity Release Council guarantees too, which you will benefit from by choosing a plan from one of their members. This includes the ‘no-negative equity guarantee’, for example, which will be of reassurance to anyone put off by the equity release horror stories of the 1980s. 

For your peace of mind, our selected advisers will only ever recommend plans from members of the Equity Release Council.

The benefit of making voluntary partial payments

By making voluntary partial payments on your plan, you can reduce your overall loan and the amount of interest that would otherwise accrue on your plan in the future. 

According to the Equity Release Council’s Spring 2023 Report, more than 91,000 customers made 190,374 such payments in 2022, equating to £102 million. As well as reducing their debt, these customers will also save over £116 million in future interest costs over the next 20 years (based on their average interest rate of 3.87%).

If you kept up with the maximum payments each year then you could eventually clear your loan without incurring any early repayment charges. So, if your provider allows you to pay up to 10% of your loan each year then you could effectively repay your loan, penalty-free, in just 10 years.

Equity release: can I pay it back with partial payments?

Whether you can make guaranteed penalty-free voluntary partial repayments on your own plan depends on two main factors:

• How long you have had your plan. The guarantee applies to new plans arranged after 28th March 2022.
• Who your chosen lender is. The guarantee only applies to providers who are members of the Equity Release Council.

You can check if a provider is a member of the Equity Release Council by using their member directory here.

If you already have a plan and are wondering “can I repay equity release early”, then you should contact your provider or adviser. They will be able to confirm the maximum amount that you are able to pay off without incurring any early repayment charges.

Examples of providers’ partial payment limits

Here are a few examples of what some equity release providers allow their customers to pay off each year on new plans:

Aviva. The maximum you can repay each year is 10% of the total overall amount you’ve borrowed and the minimum you can repay at each instalment is £50.

Just. You can pay back up to 10% of each advance amount in each 12-month period. 

More2Life. Pay up to 12% of the initial loan amount in each 12 month period with their Maximum Choice plan. The minimum you can repay at each instalment is £50.

Pure Retirement. Partial payments of up to 10%, 12%, 20% or 40% of the loan annually, depending on which of their plans you select.

Canada Life. Repay up to 10% of the loan each year.

Please note: information about providers’ policies on early repayment is correct at time of writing. Terms and conditions may change – please contact us to talk to one of our selected advisers for more information.

What other equity release payment options do I have?

There are other options available if you want to make payments towards your plan, or wish to pay back equity release early.

Arrange an interest-only plan

With these equity release plans, you agree to make interest payments each month. If you pay the full interest and keep up with the payments then your loan will never grow in size. All that needs to be repaid when your home is sold at the end of the plan is the loan itself.

The benefit of this type of plan is that you can choose to stop making these voluntary interest payments at any point. If you do this, your plan will switch to a standard roll-up plan and the interest will add to your loan each month.

Pay back equity release early in full

Alternatively, you have the right to repay an equity release plan early at any time (providing your lender is a member of the Equity Release Council). You may incur significant early repayment charges by paying off equity release early, so speak to your adviser first before making a decision.

How to explore equity release further

If you are thinking about arranging equity release then make sure you speak to one of our friendly selected advisers first. They’ll be able to compare plan features and providers for you – and help you understand which type of plan will work best for you. 

Remember, equity release is one of the biggest financial decisions you can make, and there is much to weigh up. For instance, a plan will reduce the value of your estate and the amount of inheritance you leave. 

For specialist guidance you can rely on, our selected equity release advisers are ready and waiting to help you explore your options.

Please call 0808 178 3055, or request a call back for a time that suits you. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

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