Think you may want to pay off your equity release loan? Some lenders now let you do this
25 September 2019
If you’ve previously considered equity release schemes but been put off by the high early repayment charges, this development in the equity release product terms available is worth exploring. Similarly, if you’ve been thinking about equity release but are unsure whether you may want to downsize at some point in the future, the new flexibility being offered by some lenders is something you’ll want to look into.
Why you might want to downsize or pay off your equity release loan
None of us has a crystal ball, so anything that keeps your options open is generally a good thing. There are a number of reasons why you may need to downsize or sell your home completely in the future:
- Planned downsizing: You may have a clear idea that you may want to move into a smaller, more manageable home at some point in the future, and would like to pay off any equity release mortgage from the proceeds of the sale of your current home.
- Moving in with relatives: You may envisage moving in with family at some point in the future.
- Moving abroad: You may dream of a place in the sun or joining far-flung children at some stage.
- Moving into rented accommodation: You may not always want to be responsible for the upkeep of your own home and may anticipate moving into rented accommodation when the time is right.
If you think any of these scenarios might apply to you in the future, the new products available with ‘downsizing protection’ could be a good solution for you.
Equity release downsizing product innovation
Previously, if you had an equity release scheme loan, whether a home reversion plan or a lifetime mortgage, if you paid it off early you could be subject to very large early repayment charges (ERC). These could be as much as 25% of the original loan value, which is why many people opted for fixed charges (typically 5%) for a fixed time.
Some lenders have realised that these high exit penalties could deter some people from pursuing equity release to realise their retirement dreams, so they have released products which offer more opportunities to close the plan without paying heavy penalties. Among the options available (September 2019) are:
- No early repayment charges at all: from day one of the equity release plan, whether you want to buy a new property, move in with relatives, move abroad or move into rented accommodation.
- Survivor’s repayment terms for joint plans: Early repayment charges are waived for a specific period (usually three years) following the first death or one partner going into long-term care.
Finding the right equity release product for you
“The survivor’s repayment terms are becoming more common, but there is currently only one lender who offers comprehensive downsizing protection, so you need an adviser who knows the market and the different products available to help you find one that is likely to match your anticipated future needs,” commented Jan Johnson, director of 55+ Equity Release. “All our equity release advisers have years of experience and keep up to date with product developments so they can present appropriate solutions to our clients, considering their needs both today and in the future.”
More flexible equity release products mean you have the potential to keep your options more open about how you envisage your life in retirement.