You can indeed have your cake and eat it when it comes to equity release!
With 1000’s of UK homeowners over 55 releasing equity every month, the question is, do all those individuals consider that life isn’t always predictable?
Equity release is intended to last for life, but we all know that circumstances can change. Perhaps you urgently need to sell your home or move overseas to be close to family. If not careful, you might find yourself paying a fortune to settle your equity release plan in full.
However, we’ll help you discover:
- How to avoid paying exorbitant early repayment charges.
- The secret of how to reduce early repayment charges.
- If early repayment charges are entirely avoidable.
Are you wondering how we discovered these secrets? Well, after researching over 220 equity release plans from 18 plan providers and comparing each plan’s early repayment charges, we’ve got the inside scoop.
Could you cancel your equity release plan with no stress, no fuss? Let’s find out now!
What are Early Repayment Charges?
In a nutshell, early repayment charges refer to a penalty you’ll pay for cancelling your equity release plan before it comes to an end. These charges will vary, depending on the amount indicated by your plan provider.
PRO TIP: Always inquire about your plan’s early repayment charges before taking out an equity release plan.
5 Reasons Why You MIGHT Cancel Your Equity Release Plan
While equity release might be intended for life, you never know how your plans might change. Here are 5 reasons why you could find yourself cancelling your equity release plan:
- Unforeseen immigration1.
- Urgently needing some money from the sale of your home.
- The desire to move to a house that won’t qualify for an equity release.
- The desire to move into an informal structure, like a boat or caravan.
- Wanting or needing to move in with friends and family.
Whatever the case, you must make an informed decision before taking any drastic steps. Speak to your trusted financial adviser to guide you through the process.
Downsizing Protection and Equity Release
Some lenders offer downsizing protection2, and it’s a great special feature to look out for when selecting an equity plan. It allows you to move into a smaller home after 5 years and repay your outstanding mortgage debt early, without incurring any penalties.
Let’s look at an example:
If you sell your home for £500,000, with an existing lifetime mortgage debt of £200,000, you can clear your debt and buy your new home with the profit. All this without playing an extra cent.
Standard Early Repayment Charges
Early repayment charges will generally be determined by guidelines set out by the individual lender. Some will opt for a percentage of the equity released or a set amount determined by the original equity unlocked.
This percentage can also be on a scale, based on how long ago you signed your equity release plan. For example, you might pay 5% for the first 3 years, 3% for the next 5, and nothing after that time.
The lender could use a complex calculation to determine the early repayment charges you’d have to pay. In such cases, seek counsel from a finance professional, like your trusted financial adviser.
They could base this calculation on:
Early repayment charges can be steep. In some cases, they’re as much as 25% of your initial loan amount.
It’s always wise to shop around for your equity release plan and find out about these rates. That way, you can find the best option for you and your family.
You Could Achieve No Early Repayment Charges!
Sounds too good to be true? Fortunately, it’s not!
Most equity release lenders offer plans with early redemption charges for the first 3 years of your equity release.
Others will set a maximum age, and from there, no early repayment charges will apply.
In some cases, you’ll only need to worry about early repayment charges for the first 5 years of your plan. Once this point has been reached, charges will no longer apply.
Common Questions about Early Repayment Charges
Where Can I Get the Best Equity Release Advice?
When it comes to equity release advice, we strongly suggest you select a whole market adviser. That way, you can seek counsel from someone who has a holistic understanding of the industry.
Your adviser will be with you throughout the process, so make sure it’s someone you trust!
Can I Pay Off My Equity Release?
While equity release is intended for life, some plans allow you to repay the loan or interest over time. For example, you could be permitted to pay 10% of your loan annually.
While there’s no obligation, repayments could mean that your family will owe less from the sale of your home when you pass away or move into permanent care.
Who’ll Be Able To Teach Me About Early Repayment Charges?
When releasing equity from your home, you can seek counsel on the matter from your financial adviser or speak to your potential lender. Both will be able to advise on your plan’s early repayment fees structure.
While equity release is intended for life, you might be in a situation where you’ll need to settle your plan early.
While many plans allow you to make repayments, paying off your plan in full is a whole different ball game.
It’s essential to learn your plan’s early repayment charge structure before signing on the dotted line. Knowledge is power, and it’s always best to have it in advance.
Discover all the pros and cons of equity release, and speak to your financial adviser before making any final decisions. While equity release could change your life, you’ll want to be equipped before taking the plunge. Luckily, we’re here to assist you!