Can I Repay A Lifetime Mortgage Early ?
Posted on 12th March 2020 at 14:30
Up to now we’ve covered the confusion of the Equity Release name (Later Life Lending or LLL), what the money can be used for, how the mortgage works, ways to limit the amount owed and can you move house.
This time we will cover the subject of repaying the Lifetime Mortgage Early
Similar to the previous blog about moving home, when you took LLL you should have discussed with the advisor what your longer term plans were. This could also include moving home or repaying the Lifetime Mortgage as this will influence what the advisor recommends.
Many LLL products allow you to make payments , some on a regular basis, some may be restricted by a minimum amount of money for each payment or the number of payments per year, some may have a maximum amount of money you can pay per year - so there are a number of options or factors to consider.
Regular payments could be one way to repay a Lifetime Mortgage early and if done in a structured way it can be effective, but of course you need the money available in the first place to do this and for many who need LLL they don’t have the ‘spare’ cash.
So what happens if you decide to want to repay the whole mortgage in one go? The first step is to re-read the Lifetime Mortgage offer letter and mortgage illustration you receieved as this will clearly state what penalties you may incur. Generally, these penalties last for the first 10 years, although there are some that remain for the duration of the mortgage up until the youngest applicant is of a certain age.
What could it cost me ? Some Lifetime Mortgages will state that a percentage of the amount borrowed would need to be repaid. This could be 5%, 3% or something different. Other lenders may state the charges are based on the price of Gilts.
What are Gilts ? Gilts are government bonds that fluctuate in value – like a share price. If your Early Repayment Charge is based on Gilts, then a benchmark price would be set by the lender when the Lifetime Mortgage was offered. If you wish to redeem the Mortgage early, then the current Gilt price is checked against the benchmark price and a predefined calculation applied depending on whether the current Gilt price is higher or lower than the benchmark – this determines what you will have to pay.
Do not get confused this form of repaying early with repaying early following death or admission to a care home. For these situations there are generally separate rules or potentially exemption to charges.
If any of this is of interest to you and you’d like a no obligation informal conversation with a qualified advisor, please get in touch on 07788 219647 or email john.stallan@hdconsultants.net
Next time, we’ll look at if you can buy a new home with a Lifetime Mortgage.
Tagged as: Equity Release, Later Life Lending
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