There are certain circumstances under which you may wish to pay back your equity release plan a little earlier. Mark Gregory offer advice on how this works and what charges you may incur
The Question
I’d like to take out an equity release plan, but I wondered what would happen if, after a few years, I was in a position to pay it off? There’s a chance I might inherit some money in a few years, so this is a real possibility for me.
Are there early repayment charges and, if so, what are the rates on these?
Mark’s Answer
Thank you for your question, and I will be happy to provide you with a general overview of the options available with the whole of the later life lending market. The main question I would ask is under what circumstances you are considering repayment of the loan?
Dependent upon that answer, would help align any potential advice – the reason being there are a number of features within equity release plans today that now facilitate a change in circumstances, such as moving home, downsizing and death or long-term care of a partner (compassionate clause).
An adviser with such upfront knowledge of your future circumstances could then tailor the best plan for your needs.
However, today without that information I will continue to explain about equity release and the fact it can either be a Home Reversion Plan or a Lifetime mortgage.
A Home Reversion Plan would include selling all, or part of your home in exchange for a tax-free lump sum. You would receive a lump sum, but not for the full sale price of the share you have sold, so to re-purchase this share back in the future, could prove very expensive.
The alternative option is a Lifetime mortgage where you retain 100% ownership of your home, and a provider would lend you capital that is secured against the equity in your home – like any conventional mortgage. With a lifetime mortgage the provider will include a fixed lifetime interest rate, and the balance will compound if you decide not to make any payments.
Set up costs
Set up costs do need to be considered if you are looking to repay your equity release plan early.
These plans are designed to run for the rest of your life with a lifetime fixed rate of interest. The set up costs charged are traditionally an advice fee and solicitor fees, which are usually paid on completion of the lifetime mortgage.
The good news is with increasing lender competitiveness, plans don’t usually charge any valuation fee or application fee.
Early repayment charges
The duration of early repayment charges (ERC) on lifetime mortgages varies between lenders and products. If you decide to repay a lifetime mortgage early, typically, the provider will apply early repayment charges for a limited time such as four, five, eight, 10 or 15 years. Most plans now have fixed ERCs which means they will charge a fixed percentage of the amount repaid during the ERC period.
In addition, there is currently one equity release provider More2Life that currently has a Zero early repayment charge. The Maximum Choice ZERO ERC plan does charge a £1,199 application fee, and they have a higher fixed interest rate than most lump sum plans, but under the right circumstances can prove cost effective.
A Lifetime mortgage maybe an option for you. However, there may be more suitable plans for you including Retirement Interest only Mortgages where the charging structure and benefits may be more align with your personal plans.
Therefore, my advice at this time is to speak with one of our friendly, expert Equity Release Supermarket advisers who have access to every plan available. They will discuss your circumstances, explain the different options available and the potential early repayment charges in more detail.
Furthermore, they will not charge you for an initial consultation as we only charge an advice fee when any plan they have recommended completes, and you are entirely happy following a consultation with your own solicitor.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
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