Lifetime mortgage early-repayment charges: costs and exemptions

Are you asking yourself, 'Can you pay off a lifetime mortgage early?' This is a common question.

In this article, we’ll delve into:

•  The hidden costs of lifetime mortgages
•  How to sidestep the pitfalls of a lifetime mortgage
•  Getting a realistic quote for a lifetime mortgage
•  The amount to pay back on a lifetime mortgage
•  The process and implications of repaying a lifetime mortgage early

It’s normal to feel a bit lost when it comes to making big financial decisions. But don’t worry; we’re here to provide clear, straightforward advice to help you navigate this journey.

Let’s unravel the mysteries of lifetime mortgages together, starting with the hidden costs and how to avoid them.

Quick Summary

Lifetime mortgages are the most common method of equity release, which is a borrowing method exclusive to senior homeowners. 

Most standard lifetime mortgages start at age 55, but some payment-term lifetime mortgages are available from 50 and require interest payments for an agreed period. Home-reversion minimum ages and all other eligibility rules depend on the provider. Check the youngest applicant’s age and the actual product criteria. Eligibility depends on the product, age, property, credit circumstances and any required affordability assessment. Minimum property values and borrowing limits are lender-specific. An existing mortgage normally has to be cleared at completion, often using some of the released funds.

A lifetime mortgage is a loan secured on your home; you retain ownership. Interest that is not paid is added to the balance. The loan is usually settled when the last borrower dies or moves permanently into care, subject to the contract. Required or optional repayments vary by product. See related guidance.

The borrower retains ownership. Normal repayment triggers include the final borrower’s death or permanent move into care, but other contract conditions also matter:

1. Passes away
2. Moves into long-term residential care (e.g an aged care facility) 

Can I repay early?

Even though lifetime mortgages are expected to last for the remainder of your lifetime – as their name suggests – you can pay off a lifetime mortgage early. 

There might be a financial penalty for paying off the equity release plan early. More on this shortly. 

» TAKE ACTION NOW: Find out how much equity you could release

Why would you want to pay it off?

You may decide to pay off all or some of your lifetime mortgage early. 

For example, you might win a lot of money or inherit a significant amount and use this to clear the lifetime mortgage debt, which would then allow you to pass on the property to loved ones. 

Alternatively, you may decide to downsize to a lesser valuable property in the future. As part of the downsizing process, you could be allowed to take your lifetime mortgage with you and have it added to the new property. 

A move to a cheaper property may require a partial repayment. The amount and any charge depend on the lender’s criteria and plan.

How much do you pay back?

The amount you repay on a lifetime mortgage will depend on:

1. Your loan amount
2. The interest rate applied
3. The length of time you have the lifetime mortgage

The amount also depends on fees, compounding and repayments. These costs affect your equity and future choices during life as well as the estate after death.

Another way to understand how much you would repay is with an example…

Illustration only: £65,000 at 6.4% interest compounded annually without repayments becomes about £137,000 after 12 years, excluding fees. See related guidance.

Will I incur additional costs?

Yes, early repayment charges are usually added to lifetime mortgage agreements. These fees are in place to compensate the lender if you decide to pay the debt off early. 

However, there are some times when the lifetime mortgage early repayment charges are £0 or are no longer applied. 

We’ll return to discuss how to avoid early repayment fees in specific situations.

What is a typical charge?

Early-repayment charges differ between mortgages and other credit agreements. Compare the actual schedule rather than assuming a universal 1–5% benchmark.

Although some lifetime mortgage products will have a fixed early repayment cost structure, other agreements include a variable rate structure.

Equity release with variable structure

Gilt-linked early-repayment charges generally depend on how a specified gilt yield has changed since the relevant start date, subject to the contract and any cap. See related guidance.

A zero current yield does not mean a zero charge. Under a typical gilt-linked formula, a fall in the reference yield can create a charge; a rise can mean none. Ask the provider for the exact calculation.

Do not assume future gilt movements will make early repayment cheap; obtain a current redemption quote.

Some agreements can produce substantial charges, subject to their formula and cap. The actual percentage cannot be inferred from the current yield alone.

Fixed charges

Other lifetime mortgage agreements use fixed early repayment charges, so you’ll know exactly what rate you will need to pay on the outstanding debt to pay off the loan. 

A fixed schedule states how the charge changes over time. The dates and percentages are product-specific; any example should not be treated as a current offer.

How to avoid it

There are three ways to avoid having to pay an early repayment cost, which has been fully explained below:

#1: Pay it off at the right time

You cannot reliably time gilt movements. Ask for a redemption quote and assess the cost and risks of waiting with an adviser.

#2: Pay at the end of the period

If your early repayment charge is fixed and depends on how long you have held the loan, you might be able to access a 0% charge if so many years have already passed. This is quite common but it means the debt will have already grown significantly. 

#3: Use a downsizing clause when moving to a less valuable home

If you need to pay some of the loan off as part of downsizing to a lesser valuable property (but taking the lifetime mortgage with you), then you could avoid an early repayment charge with a downsizing clause. 

Downsizing protection applies only when the contract’s conditions are met and can include a waiting period or other restrictions.

How do you do it?

To repay your lifetime mortgage early, you will need to contact your lifetime mortgage provider and let them know you want to clear the debt. 

If your plan includes a variable early repayment structure, you can ask the provider for a quote on the early repayment charge, which will only be valid for so many days before it expires. 

You’ll need this quote to fully understand the costs of repaying a lifetime mortgage on a variable early repayment structure.

Things to consider

Equity release includes lifetime mortgages and home reversion plans. A lifetime mortgage is a loan secured on your home; a home reversion plan sells part or all of the property. Equity release reduces what may be left in your estate and can affect means-tested benefits and future care funding. A lifetime mortgage is usually repaid when the last borrower dies or moves permanently into care, subject to the plan terms. Specialist financial and independent legal advice are needed. Any existing mortgage must normally be repaid from the proceeds or other funds. Age Partnership publishes an advice fee of £1,995 payable on completion; confirm the current fee in your personalised illustration. Lender and legal fees may also apply.