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How do early repayment charges work for equity release?

4 mins read
by Unbiased Team
Last updated Wednesday, April 10, 2024

We explore early repayment charges for equity release and reveal how these vary and impact overall repayment costs.


  • Equity release allows homeowners aged 55 and over to access tax-free funds without selling their property.

  • By paying off equity release early, it is crucial to understand the fees.

  • Early repayment charges compensate the lender for interest income and can be up to 25% of the outstanding loan amount.

  • Unbiased can connect you with a trusted mortgage broker to help you navigate equity release repayments and fees effectively.

How does equity release work?

Equity release offers homeowners aged 55 and over the opportunity to tap into equity locked within their property.

This allows you to access tax-free funds while retaining ownership and the right to continue residing in your home. 

Essentially, it can bolster your retirement income or address specific financial needs without having to sell your property.

Can you pay off equity release early?

Absolutely! You have the option to pay off equity release early, especially if you have a lifetime mortgage, which is the most common type.

However, it's crucial to understand the details of your agreement and the charges associated with early repayment.

When you settle your equity release ahead of schedule, you may encounter early repayment charges (ERCs), which compensate the lender for the interest income they would have earned if you had the loan for its full term.

ERCs can vary, depending on the terms of your equity release agreement and your lender's policies.

According to Money Release, these charges typically range from 0% to 25% of the outstanding loan amount, although this figure can vary based on individual circumstances. 

There may be other fees associated with paying off your equity release early.

These could include administrative fees, legal fees for processing the early repayment, and valuation fees to determine the current value of your property. 

How much does it cost to pay off equity release early?

Early repayment charges can vary depending on the lender's approach. Some lenders employ a fixed-rate method, establishing the charge upfront.

Others are more flexible, allowing you to repay a set percentage annually without fees or adopting a variable rate tied to gilt yields.

Hodge Bank states early repayment charges can reach up to 25% if gilt yields fall, but no penalty applies if they remain steady or rise.

Equity release early repayment charges are linked to the initial calculations in the sense that they are both components of the overall equity release process.

To grasp the full picture of paying off your equity release early, it's essential to consider how lenders calculate it.

With equity release, homeowners agree with their lender on the maximum amount they can borrow against their property's value.

This is typically a lump sum payment, with repayment expected upon the homeowner's death or when they move into long-term care.

Interest rates on equity release loans vary depending on the homeowner's age, property value, and desired equity release amount. 

While the initial calculations determine the agreement terms and the amount borrowed, understanding ERCs is crucial if you are considering paying off equity release early.

Both aspects are integral to the overall equity release process and have implications for your financial decisions.

Why should you pay off equity release early?

Paying off equity release early can work in your favour as it gives you more flexibility and control over your finances.

When you chip away at your debt ahead of schedule, you're not just saving on interest – you're also freeing up cash for other investment opportunities or financial goals.

Paying off equity release early sets you up for a more stable financial future.

By slashing those long-term debt obligations, you're lightening the load and paving the way for greater peace of mind and financial security, especially as you head into retirement.

How can I pay off equity release early?

If you're thinking about paying off equity release early, the first step is to review the terms of your agreement.

It's also a good idea to chat with a qualified mortgage broker or financial adviser. They can help you determine your options, weigh the potential costs and benefits, and navigate the repayment process smoothly.

When paying off equity release early, borrowers have a few different strategies. You might make one lump payment, increase your regular payments, or pay back the interest. 

Some equity release plans also include downsizing protection options. This means you can pay off your loan early without incurring extra charges if you decide to downsize to a smaller home. 

Seek expert financial advice

Opting to pay off equity release early offers homeowners the chance to boost their financial flexibility.

It allows you to decrease your debt burden, lower interest payments, and optimise your inheritance for your beneficiaries.

However, navigating the intricacies of early repayment requires an understanding of associated costs, such as early repayment charges and potential additional fees.

By seeking guidance from a qualified professional, you can gain valuable insights into navigating early repayment of your equity release and secure a more stable financial future. 

Let Unbiased match you with a mortgage broker for expert financial advice to help you make informed decisions that align with your long-term goals and ensure the best outcome. 

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Unbiased Team
Our team of writers, who have decades of experience writing about personal finance, including investing, retirement and pensions, are here to help you find out what you must know about life’s biggest financial decisions.