If a full or partial redemption is made within 8 years of the lifetime mortgage end date, an early repayment fee will be paid. For the first 5 years, the early repayment fee is 5% of the reimbursed amount, with a maximum limit of 5% of the initial prepayment plus the completion fee for full refunds. Typically, you'll pay between 1% and 5% of your outstanding mortgage loan as a penalty for leaving early. The lender will need to conduct an affordability assessment, based on the applicant's income, and use a capital release amortization calculator to determine how much he can comfortably afford.
Some plans may offer downsizing protection, allowing you to move to a smaller home and pay your lifetime mortgage balance without penalty. The payment options and subsequent charges that may apply when you pre-settle the Capital Release will depend on the plan you choose. While you're not looking to pay a lifetime mortgage early in this situation, you're free to move home without penalty. The loan process for your provider means that they will have to determine how they are going to be able to afford to lend you the amount you need and they will have to make some assumptions about how long it will be before you or your estate repay the borrowed money.
A mortgage early repayment fee is a penalty charge that most borrowers face if they want to change or cancel their current mortgage agreement ahead of time. If you decide to repay your entire equity release mortgage while you're still alive, you may well be charged an early repayment fee. However, depending on the lender and the type of lifetime mortgage you have, early repayment fees may apply. Most lifetime mortgage providers now offer a flexible option that allows regular and voluntary repayments of principal (up to 10% annually of the original amount borrowed) or interest over the life of the mortgage.
In this case, there are no early repayment charges to be made unless the new property has a significantly lower value and, as a result, you have to make a partial repayment of the lifetime mortgage. However, if you repay your loan early, this can have an impact on your provider's calculations and, specifically, on how much it actually costs your provider to terminate your contract. The amount you are charged for fixed early repayment charges will depend on your plan and how long you have had it. Whatever the reason, knowing how early reimbursement charges work and how much it will cost you to leave your deal is key before making any important decisions.
If the benchmark rate is lower than when the initial offering was made at the time you decide to pay the mortgage in full, an early repayment fee will apply.