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 0800 096 2215 or request a call back from our friendly team to arrange an appointment.