Voluntary Repayment Plans
If you are looking to safeguard an inheritance and control the balance of your equity release scheme, you may be
interested to learn about voluntary repayment plans.
The voluntary repayment equity release plan provides flexibility by having the facility to make ad-hoc repayments
of interest and/or capital to control the balance. Rather than the interest compounding, these optional partial
payment plans allow homeowners to repay up to 40 per cent of the original amount borrowed each year (dependent
on the lender) with no penalty.
How does the optional partial repayment plan work?
To proceed with a voluntary repayment plan, you must first be age 55 or over and own a property that is worth at
least £70,000.
The homeowner then chooses from a lump sum or drawdown lifetime mortgage and, in turn, takes a portion of tax-free cash from their property. Interest is then charged in accordance with the terms of the scheme. However, rather than interest accruing, payments are made back to the lender, effectively repaying part or all of the interest.
In fact, by making a payment of higher than the interest charged, you could effectively reduce and even repay the mortgage balance outstanding.
Advantages of voluntary repayment plans
The beauty of any voluntary repayment plan is that no proof of income is needed to qualify. Therefore, where traditional mortgages have been declined based on affordability, the optional partial repayment scheme can be used as an alternative. This is a great solution to providing an interest-only lifetime mortgage, or capital and repayment mortgage in retirement.
Voluntary repayments are made at the discretion of the homeowner and are achieved without any administrative fees or penalties. Any payments can be made following contact with the lender to ensure that the maximum percentage limit isn’t breached. The transfer of funds is usually made by cheque, debit card, online bank transfer or some lenders will permit a standing order.
Partial voluntary repayment mortgage strategies
Depending on how the future equity release balance is to be managed, several repayment strategies can be initiated, as follows:
Make interest-only repayments
This option will keep the future balance level, thus protecting the equity value within the property and any inheritance you, the homeowner, wishes to pass onto your beneficiaries.
Utilise the maximum voluntary repayment allowance
By opting for this strategy, you not only repay the interest but also an element of the capital too. If permitted, and allowing for a 40% voluntary repayment strategy, the whole balance can be repaid within 3 years!*
Why not use our voluntary repayment calculator above to give you an idea of how making ad hoc repayments could work for you?
Make purely random repayments
Whenever you have some extra money and consider using this to pay off the balance, it will slow down the compounding effect of the interest. However, the balance could still increase over time.
The beauty of these optional partial repayment plans is there are no mandatory repayments and they can effectively be switched ‘on or off’ as the retiree wishes. They are quickly becoming the lifestyle mortgage choice for the over 55s, due to the flexibility, a fixed interest rate for life and balance control.
To find out more about the advantages of voluntary repayment plans, speak to one of our experienced advisers today.
To learn more about the current interest rates and best equity release deals on the full range of optional partial repayment plans, why not check our ‘compare deals’ tool?
Compare voluntary repayment plans
These are lifetime mortgage schemes offering a flexible payment option. To understand their features, benefits and risks, please contact Equity Release Supermarket for a personalised, key facts illustration. All quotes can be tailored to your own circumstances and you are under no obligation to proceed.
*Please be aware that some lenders will allow a balance reduction to a £10,000 collar. If the balance is reduced below £10,000 then early repayment charges may apply. Speak to your Equity Release Supermarket adviser for more information.
