If you are considering releasing equity from your home, you may be wondering whether you can make repayments on your loan. In this guide we’ll explain some of the key things you need to know about taking equity release with a repayment option.
Can I make repayments on equity release?
Yes, borrowers can make repayments on their equity release plan.
In March 2022 the Equity Release Council introduced a new safeguard which guarantees all equity release customers the right to make repayments. The new product safeguard allows borrowers to make partial repayments without incurring a penalty charge on plans that meet Council standards.
This is one of several product safeguards that protect borrowers, provide flexibility and ensure that it is safe for them to unlock some of the equity from their homes.
Do I have to make repayments on an equity release plan?
No, borrowers are not obliged to make repayments if they do not wish to. This is one of the biggest benefits that equity release offers older homeowners. A lifetime mortgage allows borrowers to access the wealth tied up in their home without the need to make any repayments. The loan plus interest can be repaid if and when the borrower goes into long term care or when they pass away.
What are the equity release repayment options?
Equity release plans that are approved by the Council allow borrowers to make partial or full repayments whenever they choose to. Most plans allow you to make partial repayments free of charge up to a certain amount; typically 10% of your loan amount each year. Some plans allow you to repay up to 12% or even 40% of the loan amount without penalty. However, in some cases there may be an early repayment charge applicable.
Borrowers have four main repayment options:
- Make no repayments at all
- Pay some of the interest
- Pay all of the interest
- Pay more than the interest
It’s important to note that you have flexibility with these repayment options. For example, if you choose to make monthly interest repayments and your circumstances change you can stop making repayments at any time. Any repayments you make are voluntary.
What are the benefits of making repayments on an equity release plan?
Repayment options on equity release plans give borrowers more control and flexibility over their borrowing and their finances in later life.
By making equity release interest repayments borrowers can avoid compound interest and prevent the initial loan amount from increasing.
By paying more than the interest borrowers can not only avoid compound interest, but also pay off some of the capital and reduce the overall loan amount.
One of the main reasons why borrowers may choose to make repayments is to protect and maximise the amount of inheritance that they leave to their family. If your goal is to leave an inheritance to your family there are options available to cater to this, for example ‘ring-fencing’.
What does Martin Lewis think about equity release?
Martin Lewis, Founder of Money Saving Expert, is a trusted source of financial information for many people across the UK. Here are a few quotes from Martin about equity release from the Money Saving Expert website:
He says “…most lifetime mortgages do allow you to make repayments, be that repayment of the capital or just the interest, meaning you can reduce the overall cost.”
Martin also says “Don’t borrow all you need in one go”, by this he is referring to the fact that interest begins to accrue on the funds you borrow from the moment you access them. With this in mind, you should only release funds as and when you need them.
Lastly, Martin recommends that “Before applying for a lifetime mortgage or home reversion plan, you’ll first need to seek advice from a qualified equity release adviser.”
The team here at Personal Retirement Planning are qualified Equity Release Advisers. We are also proud members of the Equity Release Council and only recommend equity release plans that meet Council standards.
Get in touch to:
✓ Find out how much you could borrow
✓ Discuss your individual requirements
✓ Understand what repayment options are available to you and how making use of those options could impact your overall loan amount
If you’d like to discuss equity release please give us a call on 0203 435 9561 or email Barry Leigh, one of our Equity Release Advisers, via firstname.lastname@example.org. We look forward to supporting you with equity release.