Repaying your equity release mortgage

Paying the interest on an equity release mortgage

Many providers will now allow you to pay the monthly interest on equity release mortgage, so the balance remains the same as the amount you borrowed so avoiding the interest compounding and in turn increasing the amount you owe.

Voluntary overpayments

Again, most providers will allow you to make voluntary payments usually up to 10% per annum, so if its affordable, you can gradually reduce the amount you owe.

Early repayment charges on an equity release mortgage

Although all equity release mortgages will give a guaranteed fixed rate of interest for the lifetime of the mortgage, you need to be aware of the different types of early repayment charges.

Some equity release mortgages have early repayment charges linked to the Gilts Index; these mortgages have a variable early repayment charge which can be payable for the term of the mortgage.

Increasingly, more providers are now offering fixed early repayment charges, and these can be only for the first five years with some products. Once you have had the equity release mortgage for 5 years, you can repay it in full without paying a penalty.

How would a whole of life insurance policy work?

As mentioned above, many of our clients now choose to pay the monthly interest on an equity release mortgage, the problem with paying just the interest is that you will always still owe the amount you borrowed. If you go into long-term care or when you pass away, the mortgage debt is still owing, and this will reduce the amount you can leave to your beneficiaries.

Imagine for a moment that there is a way of paying back both the full mortgage balance and all of the compound interest. This is where a whole of life insurance policy could provide the solution.

Let me give you a simple example:

Option 1

John aged 65 takes out an equity release mortgage for £100,000 with a lifetime fixed rate of interest at 3.00%, he chooses to pay the interest which will cost him £250.00 a month. No matter how long John lives, he will always owe the original £100,000.

Option 2

John aged 65 takes out an equity release mortgage for £100,000 with a lifetime fixed rate of interest at 3.00%, rather than pay the monthly interest saving him £250.00 a month, he opts for whole of life insurance policy, this is how it works:

John’s monthly premium for the policy is £248.93, the premiums are guaranteed for life which means the premiums will never increase. John has also chosen to index link his policy at 3.00% per annum, this means the sum assured will increase by 3% per annum, exactly at the same rate of his equity release mortgage, so John’s policy will pay-out enough to pay the equity release mortgage in full.

So, when John passes away, his equity release mortgage and the compound interest will be paid in full. We also advised John to have his whole of life insurance policy written in trust, so the money is not included in his estate for inheritance tax purposes and the money goes straight to his beneficiaries

How do I arrange a whole of life insurance policy?

We will help you choose the right product and provider, we will explain your options, in jargon free plain English, so you can make an informed decision.

How does equity release work?

Step 1: Get advice

Speak to one of our Partners who is qualified to offer advice on equity release and later life mortgage products.

We will take time to understand your mortgage need and aspirations and to make sure equity release is right for you, we may be able to recommend another type of mortgage that works better for you.

We will then email you a personalised mortgage illustration and send you an information pack in the post. We’ll spend all the time it takes, so you fully understand the product, so it works for you now and in the future, should your circumstances change.

Step 2: Valuation & Offer

Once you give us the green light, we will submit your application online to the lender.

At this point, you need to instruct a solicitor to act on your behalf. We work closely with Equilaw and can instruct this firm on your behalf if required.

The lender will arrange a FREE valuation of your home. Once this has been completed and your application approved, the lender will send the offer to you and your solicitor.

We have arranged that Equilaw will send a locum solicitor to your home to sign the mortgage documents at no additional cost, a date for completing the mortgage can be scheduled.

Step 3: Receiving money

We’ll make sure the mortgage offer is exactly as we described and then work with your solicitor through to completion.

Your solicitor will repay any existing mortgage on your property and then send the balance of the funds to you.

If you have decided to make monthly interest payments on you mortgage, we’ll explain the options available to you.

You can choose the have a lump sum on completion or a drawdown facility or a combination of both.

We will always be available to advise you in the months and years to come, should your circumstance change.

How long does equity release take?

The length of time it takes to complete an equity release mortgage will depend on the provider we have recommended. Here is a simple guide to the timescales involved:

Same day decision in principle.
Valuation instructed within 24 hours.
Mortgage offer issued within 48 hours of the lender receiving the valuation.
Legal completion usually within 4 to 6 weeks from instruction.

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What you need to know

Could a whole of life insurance policy repay your equity release mortgage for you?