A question I’m hearing is “Can Equity Release be repaid before death”? The answer depends upon the terms and conditions of the plan the customer has.
The first thing to remind you of is that Equity Release is not a product, it is a process. The historic way to release equity was by selling your home to a Reversion Company which then gave you a lump sum, usually significantly less than market value. These plans have understandably fallen out of fashion.
The modern way to release equity is to use a Lifetime Mortgage. Here the lender takes a first legal charge over the property in the same way as a lender in the conventional mortgage market would. The expectation of a Lifetime Mortgage is that it will last for a customer’s lifetime, but modern plans have become very flexible.
Over the last few years, lenders have addressed the issue of early repayment and servicing the debt making modern plans exceptionally flexible. Whilst all plans come with early repayment charges (ERCs), these days they are for fixed periods, typically tapering over 10 years and expressed as a percentage of the original amount borrowed or sometimes the amount outstanding.
When you combine this with the ability to make voluntary or “ad-hoc” payments the debt can be serviced or indeed paid down over time. All plans have to offer this payment facility as part of the Equity Release Council guarantees. With most plans allowing payments, without incurring penalties, of 10% of the amount borrowed, capital repayment can be achieved.
This makes modern Lifetime mortgages a very attractive option for the older borrower particularly as there are no affordability, income and expenditure or stress checks required. The property is more important than the applicant!
A Lifetime Mortgage is a long-term commitment that could accumulate interest and is secured against your home. Equity Release is not right for everyone and may reduce the value of your estate.
Check out our previous article here.