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Equity release allows homeowners over 55 to access money tied up in their property without having to sell it.
While it can be a helpful way to improve financial flexibility later in life, some people later decide they want to pay it off early.
This could be due to a change in circumstances, receiving an inheritance, or simply wanting to reduce the amount owed.
It is possible to repay an equity release plan before it would normally end, but the process comes with conditions and potential costs that need to be carefully considered.
Can I Pay Off Equity Release Early?
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How Equity Release Works
For those who may not be familiar with equity release, the most common option is a lifetime mortgage.
This is a loan secured against the property, with no monthly repayments required unless the homeowner chooses to make them.
Instead, the loan and any interest added over time are repaid when the homeowner passes away or moves into long-term care.
Since interest builds up over the years, the amount owed increases unless voluntary payments are made.
Another option is a home reversion plan, where part or all of the property is sold to a provider in exchange for a lump sum or regular payments.
In this case, buying back the sold portion can be expensive, so early repayment is much less common.
Can an Equity Release Loan Be Paid Off Early?
Most equity release providers do allow for early repayment, but the terms vary depending on the lender and the agreement in place.
Since these plans are designed to last for life, many lenders charge early repayment fees to recover some of the interest they would have otherwise earned.
The amount charged depends on how long the loan has been running and the lender’s policies.
How Early Repayment Charges Work
Lenders apply early repayment charges in different ways. Some have a fixed percentage that remains the same throughout the loan term, while others reduce the charge over time.
In certain cases, these fees may be waived, such as if the borrower is moving to another property that does not meet the lender’s requirements.
Many modern equity release plans now offer more flexibility, including the option to make partial repayments without penalty.
This means homeowners can reduce the overall debt and limit the interest that builds up, without having to pay off the full loan at once.
Things to Think About Before Paying Off Equity Release
Before deciding to repay an equity release loan early, it is important to think about whether it is the right financial decision. Some key points to consider include:
- Depending on the lender, these could add a significant cost to clearing the loan ahead of schedule.
- Using savings or other assets to repay the loan may have long-term effects. If the money is needed later, it may be difficult to access again.
- Some people choose to make voluntary payments instead of paying the loan off completely, helping to manage interest without facing large fees.
- If repaying the loan early would limit access to funds that may be needed in the future, it is worth thinking about whether it is the best choice.
Are There Ways to Avoid Early Repayment Fees?
Some lenders offer exemptions from early repayment charges in specific situations. For example, some plans allow repayment without penalties after a set number of years.
Others may waive fees if a spouse passes away or moves into long-term care.
If early repayment is something you are considering, checking your agreement or speaking with an expert can help clarify your options.
What Are the Alternatives?
For those who want to reduce their equity release balance but are unsure about repaying the full amount, making smaller voluntary payments could be a more practical option.
This approach helps to keep interest costs under control without committing to a full settlement. Some people also explore switching to a more flexible plan, which could offer better repayment terms.
Finding the Right Option
If you are thinking about repaying equity release early, understanding the costs and options available is essential.
Some plans make it easier than others, and for some homeowners, alternative strategies may work better.
Our mortgage advisors can explore different solutions with you, helping to find an approach that suits your circumstances and long-term plans.
