Expert VerifiedEarly Repayment Charges on Equity Release: 3 Things to Know in 2025
- Last Updated: 05 Aug 2025
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Be aware. Equity release comes with drawbacks which are important to think about. Lifetime mortgages are secured loans. Compound interest means the amount you owe can grow quickly. Equity release reduces your estate's value and may impact means-tested benefits.Key Takeaways...
- Early repayment fees are what lenders charge if you repay your equity release loan ahead of schedule, and these charges are usually a percentage of the amount you repay early.
- Fees are often applied if you repay more than the agreed amount within the initial five to ten years of the loan, adding a significant cost and making early repayment more expensive.
- Selecting a plan without early repayment charges or sticking to the lender's terms can avoid these fees.
Have you ever wondered whether equity release with no early repayment charges could be more than a hopeful homeowner’s pipe dream?
When going through the different equity release stages, it is important to consider whether repaying your equity release early is something that is important to you.
The good news is that repaying your equity release loans with no early repayment charge could indeed be possible!
In This Article, You Will Discover:
The team at EveryInvestor has dedicated extensive hours to provide you with the answers.
Therefore...
What Is Home Equity Release In The UK?
Equity release, available to homeowners over 55 in the UK, turns property equity into accessible cash without the need to sell.
It is a financial strategy for supplementing income or funding life goals.
By choosing to release equity from their house in the UK, the homeowner receives funds against their property, with repayment deferred until the home is sold, either in their lifetime or from their estate.
Equity Release Early Repayment Charges: What You Need to Know
Early repayment charges (ERCs) on equity release in the UK can fluctuate substantially, commonly ranging between 5% to 25% of the initial loan amount.
Let's check out everything you need to know:
What Is an Early Repayment Charge in Equity Release?
An early repayment charge (ERC) is a fee that lenders may apply if you repay your equity release loan before the end of the agreed term, compensating the lender for the interest they expected to earn over the full term of the loan.
ERCs are usually calculated based on the size of the repayment and the time remaining on the loan; some plans have fixed ERCs, while others apply variable fees based on market interest rates.
Their determination is based on a myriad of factors such as the type of plan chosen, the interest rate at the time of release, and the lender's specific terms and conditions.
It's important to note
These charges act as a form of financial deterrent for those considering repaying their equity release loan ahead of its due date; however, it is important to note that some equity release plans in the UK offer 'no negative equity guarantees'.
This means if the sale of your property does not cover the loan, your estate will not be liable for the difference.
Additionally, some plans may have 'downsizing protection', allowing early repayment without penalty if you decide to move to a smaller property.
Can You Pay Off Equity Release Early? The Rules Explained
Yes, you can pay off an equity release loan early, but doing so may trigger early repayment charges, depending on your plan.
Most equity release providers allow for early repayment, but the fees can be substantial, especially if you repay within the first few years of the loan.
Some plans offer more flexibility, allowing you to make partial repayments without penalty and helping to reduce the loan balance over time. Before deciding to pay off equity release early, review your contract to understand the specific conditions and potential charges.
Equity Release with No Early Repayment Charges: Are There Options?
Yes, there are equity release options with no early repayment charges; some lifetime mortgages now allow voluntary repayments without penalties, providing flexibility to reduce the loan amount and interest over time.
Overall, there are various ways this can be done based on industry standards set by the Equity Release Council (ERC).1
However, early repayment charges (ERCs) may apply depending on the stipulations of your equity release agreement.
Mortgage with No Early Repayment Charge: Does It Exist?
Yes, some mortgage and equity release products come with no early repayment charges designed for homeowners who want flexibility in managing their debt without facing penalties for repaying early.
However, these products are often accompanied by higher initial fees or interest rates, so while you avoid repayment charges, the overall cost may still be higher.
Always compare the total cost of borrowing when considering a no-charge option.
What Is A Typical Equity Release Early Repayment Charge?
A typical equity release early repayment charge can range from 5% to 25% of the amount being repaid early.
The precise amount depends on factors such as the lender's terms, the type of equity release plan, and the duration of the loan.
It is essential to carefully review the terms and conditions of your equity release agreement to understand the charges you may face if you decide to repay your loan early.
Fixed vs. Variable Early Repayment Charges
Whether you pay fixed or variable early repayment charges will depend on what your original equity release agreement says.
Fixed early repayment charges remain constant throughout the loan term, providing certainty and predictability.
In contrast, variable early repayment charges fluctuate based on market conditions or a predetermined formula.
Take care...
Whilst variable charges may sometimes be lower than fixed ones, they can also increase significantly, leading to higher costs in the long term.
Equity Release With Fixed Early Repayment Charges
Equity release with fixed repayment charges refers to a plan where the ERCs are calculated as a predetermined percentage of the amount of capital being repaid.
You will discover how your fixed ERCs are structured in your Mortgage Offer2 or Key Facts Illustration.3
Equity Release With Variable Early Repayment Charges
Variable ERCs are based on the long-term interest rates linked to the FTSE gilt yield index.4
Your Mortgage Offer includes a benchmark interest rate, which will be slightly higher than the index was when your mortgage was initiated.
How does all this work?
Basically, if the gilt yield is the same or higher than the benchmark interest rate, you will not pay any early repayment charges.
You will, however, be liable for ERCs if the index is lower than your benchmark interest rate.
Which Lenders Offer Fixed Early Repayment Charges?
Various lenders offer fixed early repayment charges, including Aviva, Legal & General, and More2Life.
These lenders are committed to adhering to the Equity Release Council's standards, ensuring compliance with FCA requirements.
Whilst they offer predictability and stability regarding repayment costs, it is crucial to thoroughly compare interest rates, features, and other fees to determine the best option for your unique financial situation.
Remember to review their terms and conditions, including regulatory statements and risk warnings, to understand how fixed ERCs are calculated and how much you could be charged if you decide to repay the loan early.
Which Lenders Offer Variable Early Repayment Charges?
Lenders such as Hodge Lifetime, Pure Retirement, and Just offer variable early repayment charges on their equity release plans.
Whilst these plans can provide lower initial charges, it is essential to understand the factors that could cause the charges to increase and assess the potential risks and benefits involved.
You should review the terms of the loan agreement carefully to understand how variable ERCs are calculated and how much you could be charged if you decide to repay the loan early.
Can I Obtain Equity Release With Low Early Repayment Charges?
Yes, you can obtain equity release with low early repayment charges.
To do so, you must shop around and compare various lenders and products.
Some providers may offer reduced charges or more flexible repayment terms, but these options may come with higher interest rates or other trade-offs.
How to Avoid Early Repayment Charges on Equity Release
To avoid early repayment charges on equity release, you could consider several different strategies.
These strategies include...
- Selecting a plan with low or no charges
- Opting for a drawdown lifetime mortgage with a reserve facility
- Considering alternatives to equity release, such as downsizing or borrowing from family members
- Making voluntary overpayments
- Opting for downsizing protection
- Benefitting from the significant life event exemption
A closer look at some of these options...
Voluntary Overpayments
Many equity release products will allow you to make voluntary overpayments to reduce the effects of compound interest or the overall debt owed.
The Equity Release Council’s fifth product standard5, introduced in 2022, also allows borrowers to make penalty-free partial repayments, meaning you can repay the interest or a portion of the capital every month without incurring any costs.
Downsizing Protection
Downsizing protection is another feature of many modern equity release plans that allows you to repay your loan without incurring early repayment fees if you sell your home and downsize to a smaller property.
For example, if you downsize to a property that does not meet your lender’s criteria, five or more years after taking out your equity release plan, in that case, your lender will allow you to repay your equity release loan from the proceeds of the sale without demanding ERCs.
Significant Life Event Exemption
A significant life event exemption allows you to repay your equity release mortgage without incurring early repayment fees in the wake of a major change, such as the death of a spouse or a move to a care home.
Example...
Mr. and Mrs. Brown have had a joint equity release plan on their family home for twelve years, when Mrs. Brown suffers a stroke and needs to move to a long-term care facility.
Mr Brown does not want to stay in the home without his wife and opts to sell their property and move in with the couple’s daughter.
In this case, the Browns will not be liable for early repayment charges, thanks to their equity release plan's significant life event exemption.
* This is for indicative purposes only.
Common Questions
Early repayment charges in equity release refer to the fees imposed by the lender if you choose to repay your loan before the agreed-upon term.
These charges are designed to compensate the lender for the interest they would have received had the loan continued for its full duration.
It is important to understand the terms and conditions of your equity release plan to know the specific details of the early repayment charges.
The calculation of early repayment charges in equity release varies depending on the lender and the specific terms of your plan.
Typically, these charges are a percentage of the outstanding loan amount and decrease over time.
The longer you have held the loan, the lower the charges tend to be.
Some lenders may also impose a fixed fee instead of a percentage.
It is essential to review your equity release agreement to understand the precise calculation method used by your lender.
In most cases, it is not possible to avoid early repayment charges on equity release.
These charges are a standard feature of equity release plans and are meant to protect the lender’s interests.
However, some plans may offer limited flexibility, such as allowing partial repayments without charges or offering a fixed period during which early repayment charges do not apply.
It is crucial to carefully review the terms and conditions of your equity release plan to determine if any options are available to minimise or avoid these charges.
Early repayment charges can have a significant impact on your equity release plan.
These charges can be substantial, especially in the early years of the loan.
They can reduce the potential savings from repaying the loan early or make it financially unviable to do so.
It is important to consider the benefits of early repayment against the potential charges to make an informed decision.
Consulting a financial advisor can help you evaluate the impacts of early repayment charges on your specific situation.
Early repayment charges in equity release typically apply if you decide to repay the loan before the agreed-upon term.
The specific timing of these charges can vary depending on the terms of your plan.
Some plans may have a fixed period during which early repayment charges apply, while others may impose charges throughout the duration of the loan.
It is crucial to review your equity release agreement to understand when these charges may be applicable.
Yes, you can repay your parents’ equity release, but the same rules regarding early repayment charges would apply as if your parents were repaying it themselves.
You can also repay your parents’ equity release when the loan agreement ends with their passing or if they move into long-term care, if you want to keep the house.
There are several reasons why you would repay your equity release loan early, such as reducing the interest you need to repay over the lifetime of the loan, or reducing the amount of debt your estate would face once you pass away.
You can repay a lifetime mortgage early using features introduced by the Equity Release Council that allow partial or full repayments in certain circumstances, like downsizing protection.
Given that a lifetime mortgage is supposed to run until the borrower passes away or goes into long-term care, and the interest is calculated accordingly, repaying your lifetime mortgage without using these features can become very costly.
Lenders with which you can repay equity release early include members of the Equity Release Council that adhere to the council’s standards and code of conduct.
The Equity Release Council’s membership represents 90% of the equity release market6, so most lenders will abide by the standards set by the council when it comes to early repayment charges and treat you fairly.
This is something you will always need to make absolutely sure of when signing your equity release agreement.
Whether it is worth paying early repayment charges will depend on your needs and circumstances.
Early repayment charges can be expensive, but they may be offset by the benefits of repaying the loan early, such as reducing the amount of interest paid over the lifetime of the loan.
One of the reasons for paying ERCs is so that there is more equity available to your heirs when you pass away.
Yes, lifetime mortgage early repayment charges are the same as with equity release because it is a type of equity release product.
In Conclusion
Early repayment charges on equity release loans can be a significant financial burden.
However, you can potentially minimise or avoid these charges by understanding the differences between fixed and variable charges, researching various lenders and their offerings, and considering alternative strategies.
Always consult a professional financial adviser to ensure you make the best decision for your circumstances.
By exploring available options for repaying your equity release loan early and following guidelines to avoid significant penalties, achieving equity release with no early repayment charges is feasible.
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