Early Repayment Charge
Because this is a fixed rate product, if you make any loan repayments before you are required to, this will lead to unexpected costs for the lender (Seniors Money).
An Early Repayment Charge (ERC) may arise if you repay some or all of the loan within 10 years of taking it out. Even then an ERC will only arise if interest rates are lower than when the loan was taken out and if you are not eligible for one of the exemptions described below.
Time limit to ERC
The ERC only applies to repayments made during the first 10 years*.
- Any repayments made after 10 years are exempt from an ERC
- For repayments made within 10 years, the ERC only applies to the remaining period to 10 Years
Example: A loan repaid 6 years after taken out will incur 4 years of ERC
*If you are aged 78 or older when the loan commences, no ERC will arise after your 88th birthday. For example, if you are aged 80 when the loan is taken out and repay it 3 years later, the ERC would only apply to the remaining 5 years to your 88th birthday.
No ERC if interest rates are higher
No ERC will arise if interest rates when the repayment is made are higher than when the loan was taken out. This is determined by comparing:
- A The 10 year Irish Government Bond rate at the time you took out the Lifetime Loan, with
- B The 5 year Irish Government Bond at the date you are making the full repayment (or the nearest comparable rate most favourable to you)
If B is higher than A no ERC is payable.
To give you some flexibility, you will be allowed to make some partial repayments without incurring the ERC, but limited as follows:
- Minimum of €500 per partial repayment
- Maximum of four partial repayments per year
- Maximum total per year not to exceed 10% of the amount originally borrowed (excluding interest)
Any partial repayments in excess of the above limits will be subject to an ERC.
Full loan repayments
No ERC will be charged when a loan is repaid in full or in part due to one of the following events:
- Death of last nominated resident
- Move to permanent long term care of last nominated resident
- Full repayment within 3 years of the death or move to permanent long term care of first nominated resident
- Sale of the property
- Repayment following demand by us in certain circumstances
How the ERC is calculated
The ERC is calculated by multiplying three numbers by each other:
- The amount of the loan including accrued and unpaid interest (after any exemptions) that the ERC is chargeable on
- The difference in interest rates between the date the loan commenced and the date it is repaid
- The number of years remaining to the 10 year ERC time limit or shorter limit if applicable
In the example shown below, €75,000 was originally borrowed at a fixed interest rate of 6.45% p.a. The client is repaying the loan after 5 years, and has not made any previous repayments. Interest rates are lower at the time of repayment so an ERC is payable:
The illustrative figures in the example below assume a loan start date of the 1 October 2022.
|Interest Rate Test|
|A 10-year Irish Government Bond Rate at loan commencement:||2.500%|
|B 5-year Irish Government Bond Rate at date of full repayment:||2.000%|
|Difference in the bond rates:||0.500% (ii)|
|B is lower than A so an ERC is payable.|
|Loan balance at date of full repayment:||€104,020||(assumes no previous loan repayments)|
|10% exemption from ERC:||(€7,500)||(i.e. 10% of amount originally borrowed)|
|ERC chargeable on:||€96,520||(i)|
|ERC chargeable for:||5 years||(iii)|
|(i) €96,520 x (ii) 0.500% x (iii) 5||= €2,413|