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Fixed rate break fee charged on equity release loan

In 2008 Stephen and Jenny entered into an equity release loan, also known as a reverse equity loan, with a lender. They borrowed $109,350 at an interest rate of 11.19% per annum secured against their home. Stephen and Jenny received the money immediately and understood they would not have to repay the loan until they both died, or they sold their house.

In 2017 Jenny died, but Stephen remained in the family home. Towards the beginning of 2022, Stephen and Jenny’s children became concerned about their father’s health and the family decided it was time for Stephen to sell the house and move into a rest home. A doctor assessed Stephen’s health and agreed Stephen would benefit from living in an independent living unit.

Stephen sold the house and moved into the unit. About ten days after moving into the independent living unit Stephen’s health deteriorated and he was moved into the hospital care wing of the rest home.

When Stephen’s lawyer received the settlement amount from the lender it included a fixed rate break fee of $88,000, on top of the $500,000 needed to repay the original loan plus interest. Stephen and his family were shocked. Why did Stephen owe $88,000 more than was needed to repay the loan?

The lender said Stephen had repaid the loan ‘voluntarily’ and a fixed rate break fee was payable.

Stephen’s lawyer said this was unreasonable and complained to FSCL.


The lender referred to the loan agreement Stephen and Jenny signed in 2008 which stated that a fixed rate break cost would apply if the loan was ‘voluntarily repaid’. They said voluntary repayment included where the home was sold but the borrower moves into an independent living unit at a rest home. It was only if:

  • both borrowers die or
  • both borrowers sold the home to move into long term care, which is defined as “accommodation in … long-term residential care in a hospital or rest home indefinitely, being care … that would qualify [for the subsidy under] the Social Security Act 1964…”

that the fixed rate fee would not apply.

Although Stephen was now in hospital care and the fixed rate break costs wouldn’t apply, at the time he repaid the loan the lender considered the repayment voluntary.

Stephen’s lawyer explained that Stephen was moving into the independent living unit at the rest home on medical advice, and that he could no longer safely live in his own home. Although Stephen might not have initially met the loan agreement’s definition allowing repayment of the loan without the fixed rate break fee, within ten days Stephen’s health had deteriorated to the point where he met the definition and was moved to the hospital wing. To resolve the complaint Stephen wanted the lender to refund the $88,000 he had paid when he sold his house.


After reviewing all the information available it seemed to us that the lender’s decision, while technically correct, was rather arbitrary. If Stephen had waited ten days before repaying the loan the lender would not have considered the repayment voluntary and would not have charged the $88,000 early repayment cost. We asked the lender to reconsider their decision. A short time later, Stephen died.


On reconsideration the lender agreed, without any admission of fault, to refund the $88,000 fixed rate break fee to Stephen’s estate. The executors of Stephen’s estate accepted the payment, and the complaint was resolved on this basis.

Insights for consumers

Before entering into a reverse equity loan, a borrower must take legal advice. Although the lawyer should have explained the terms of the loan, when it actually comes time to repay, memories might have faded, and the amount required to settle the loan may seem large. On this occasion the circumstances allowed the lender to make an acceptable offer, but if Stephen had simply downsized his home and continued to live independently the lender might have been entitled to charge the fixed rate break fee.