Making repayments gives equity release customers ‘more control’

Making interest or loan repayments can reduce the cost of equity release

Written in line with our editorial policy.

A leading industry figure believes that considering the potential for making repayments should be ‘at the heart of’ decisions about taking out a lifetime mortgage.

Writing for the Intermediary, Sanjay Gadhia of Standard Life Home Finance says that later life lending is playing ‘a greater role in the day-to-day work of financial advisers across the country’. He points to figures from the Equity Release Council that showed increased activity from customers in the final quarter of 2024.

Mr Gadhia believes that the key to later life lending solutions delivering for even greater numbers of borrowers will be assessing affordability, and, he says: “Establishing what sort of repayments the homeowner can make during the term of their lifetime mortgage.”

He continues: “Making repayments can have a dramatic impact on the eventual cost of a lifetime mortgage. The homeowner can take control of what their estate will have to pay at the end of the term, finding the balance of both addressing their present needs but also ensuring their loved ones inherit as much as possible.

“By controlling the level of interest being rolled up, the homeowner is able to retain more equity in their home, creating more financial options further down the line, should the need arise.”

Options for making repayments on a lifetime mortgage

Many people won’t be concerned about making any interest payments or repayments of the loan itself with a lifetime mortgage. Indeed, for some borrowers a key attraction of equity release is that there are no mandatory repayments. Instead, the loan and interest are typically repaid via the sale of your home when you pass away or move into long-term care. 

For those on a small fixed income in retirement especially, this can make equity release a lifeline when it comes to generating extra cash as a lump sum or regular income. 

But for others, the option of making payments to reduce the amount that will be owed when they pass away or move into long-term care is of great interest. By stopping or reducing the amount of compound interest that builds up on your lifetime mortgage, you can significantly cut the amount of money owed further down the line.

Your options include:

• Committing  to making regular full or partial interest payments with an interest-only lifetime mortgage.
• Making repayments of the loan itself. Lenders typically let you repay up to 10% of the loan each year with no early repayment charges. 

Innovation is driving a focus on repayments 

Sanjay Gadhia points to innovations in lifetime mortgages, which include flexibility when it comes to making repayments. He believes these should partly drive the need for affordability assessments and the potential to make repayments to feature in the advice every equity release customer receives:

“With a traditional lifetime mortgage, affordability may have played little part in the proceedings. With no repayments, the main considerations would tend to focus on how much equity is being unlocked, the situation with early repayment charges, and other features which may be included.

“But as the solutions have become more innovative, that is no longer sufficient. Just as affordability is at the heart of advising on traditional mortgages, so too should it now be a central consideration when advising later life clients. It’s crucial in order to secure the best possible outcomes, which may be dependent on making some level of repayment.”

About Richard Groom. A writer with 20+ years’ experience across several sectors including financial services, Richard has a passion for writing clear and simple content on even the most complex of subjects. In his spare time, Richard loves exploring the hills and mountains of the UK on long walks with his faithful cocker spaniel. Follow Richard on LinkedIn