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How is equity release paid back?

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By Clare Yates • 22nd August 2023 • 5 min read

Can you pay off equity release early?

Written in line with our editorial policy.

Equity release is typically a lifetime commitment – but it can be paid back sooner. For instance, you could make ad hoc payments or pay it off in one go by downsizing.

To help you understand your equity release repayment options, we’ll be discussing:

  • What is equity release?
  • How is equity release paid back?
  • Equity release early repayment charges.
  • Talk to an equity release adviser.

Once you have read the following guide, why not speak to one of our selected advisers for all the information and guidance you need? Our friendly team can arrange an appointment when you call 0808 178 3055, or request a call back.

What is equity release?

Equity release enables UK homeowners aged 55 or over to access some of the tax-free money from the value of their home. There are typically no mandatory monthly repayments to make and you can spend your money in almost any way you wish.

When you pass away or move into long-term care, your plan plus interest is typically repaid from the sale of your home. However, there are other ways that a plan can be repaid which we will discuss in this guide.

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

See our blog featuring examples of equity release to understand the different ways that a plan can help homeowners in or approaching retirement.

Want to know how much you could unlock from your home? Check your eligibility and get your free quote now!

How is equity release paid back?

Equity release is typically paid back when the last homeowner passes away. Your home is put up for sale to repay the equity release provider. In the case of a lifetime mortgage, that means repaying the loan and any interest that has accrued. Any money left over is given to your estate to be distributed according to your will. 

It may also be paid back when you move into long-term care. If the last remaining homeowner moves into long-term care then your home will be put up for sale. The money can then repay your loan plus interest. Any money left over can then be paid to you.

But your home doesn’t have to be put up for sale to repay your plan in these circumstances. You or your family could pay it off with other available cash to keep your home in the family.

Other ways to pay off equity release

There are a number of other ways that you can pay off your plan or reduce your overall loan if you wish: 

Paying your plan off early. You have the freedom to repay your equity release plan early at any point. For instance, you might come into some money from an inheritance or you may choose to downsize your home to a less expensive property. You do risk incurring potentially large early repayment charges by repaying your plan early, though there are exemptions which you may qualify for. 

Making regular voluntary repayments on your plan. You also have the freedom to partially repay some of your loan during your lifetime without incurring any penalties. This can help to reduce the amount of interest that accrues over time. The amount you can repay each year depends on your lender, but a maximum of up to 10% of your overall loan in each 12 month period is typical.

Interest only plans. With an interest-only lifetime mortgage, you agree to pay off the interest for as long as you can afford to. Should you decide to stop making the monthly or yearly payments, your plan will switch to a standard plan and compound interest will begin to roll up on your loan each month.

See our article Equity release repayment examples for a deeper dive into the different ways that equity release can be paid back.

Our selected advisers will be able to explain the many equity release options to you and will be happy to answer all your questions, such as “how is equity release paid back?”. Please call 0808 178 3055 or request a call back from our friendly team to arrange an appointment.

Equity release early repayment charges

When exploring your equity release repayment options, your adviser will make sure that you understand any applicable equity release early repayment charges (ERCs) on your plan. 

Depending on your lender and how long you have had your plan, ERCs can work out to be quite high. This is one of the potential pitfalls of equity release and you will need to weigh this up against any money you might save in interest by ending your plan early.

The good news is that there are exemptions to early repayment charges, so you or your estate may not incur any penalties by paying off all or some of your plan early. For instance, you won’t typically face any early repayment charges when:

  • 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 come to an end.
  • You sell the property and transfer the mortgage to another suitable property.
  • You have Compassionate Early Repayment Charges or Significant Life Event Exemption built into your plan. These typically allow you to repay your loan without penalty up to three years of your partner passing away or moving into long-term care.
  • Your plan has Downsizing Protection. This gives you the freedom to downsize your home and repay your loan in full after a set period (for example five years with some providers) without incurring any penalties.

For more information on repaying your plan early and how early repayment charges work, see our article: “Can you pay back equity release early?”

How to find specialist equity release advice.

We hope this article answers all your questions concerning “how is equity release paid back?”. If unlocking some of the tax-free money from your home is of interest to you, then we recommend speaking to one of our selected advisers for specialist guidance. 

For your peace of mind, all the information and quotations our selected advisers give you areis entirely free and without obligation. You will only receive 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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