A Complete Guide to Voluntary Repayment Lifetime Mortgages
I think you’ll agree with me when I say…
Trying to wrap your mind around this can be challenging, especially when you don’t have the right information.
Well, you need not worry.
With careful considerations, unbiased professional advice and by checking out this lifetime mortgage manual, you can finally get to understand the pros, cons of taking out this plan.
If this scheme does not suit your needs, however, be sure to read on ‘Types of Lifetime Mortgage Schemes’ get to choose the plans that will help you solve your financial needs.
What is Voluntary Repayment Lifetime Mortgages?
This scheme1 is one of the newest kids in the equity release industry. It enables homeowners to repay a portion of the loan’s capital sum after the first 12 months, thus allowing you to protect your family’s inheritance and control the balance of your lifetime mortgage.
Rather than the interest rolling up,2 this non-compulsory plans allow you to repay up to 15 per cent of the original amount borrowed each year (dependent on the plans provider) with no penalty.
How Does an Optional Partial Repayment Plan Work?
Almost any lifetime mortgage3 scheme from the conventional roll-up plans to the drawdown, interest only, and impaired mortgage options can have a voluntary repayment option attached, and most lenders are adapting to this change. However, only a few are offering this plans at the moment.
For you to qualify for this plans, you must first be 55 or over and own a residence that has a minimum value of at least £70,000.
You then opt to have a lump sum or drawdown lifetime mortgage plans. The lender then charges you interest by the terms of the scheme. Nevertheless, instead of the interest accruing, you choose to make payments back to the plans broker, thus effeciently repaying part or all of the interest.
When you make payments higher than the interest charged, you effectively lower and eventually repay the outstanding mortgage balance.
The Benefits to Taking Out Voluntary Repayment Plans
Just like other lifetime mortgage plans, this scheme has its benefits, which include:
- You don’t have to provide proof of income to qualify
- The optional partial payment plans is made at the discretion of the proprietor, and you achieve this without any administrative fees or penalties
- You can decide to make payments following consultations with your lender to ensure that the maximum limit is not breached
You transfer the funds by cheque, debit card, online bank transfers or even a standing order depending on your plans broker.
The Voluntary Repayment Plan Approaches
With regular changes occurring in the equity release docket and alterations made in how you can manage your future equity release balance, most brokers4 are initiating several repayment strategies. They include:
1. Making Interest-Only Repayments
With an interest-only plans, you can effectively maintain a level balance of your loan, thus safeguarding the equity value in your estate and any inheritance you wish to pass on to your beneficiaries.
2. Utilising the Maximum Voluntary Repayment Allowance
This allows you to repay not only the interest but also an factor of the equity too. If your lender allows, you get to go for the 15% voluntary repayment strategy, and get to repay the whole balance within 8-9 years!
3. Making Purely Random Repayments
When you have some capital and consider using this plans to sort the balance, it helps in slowing down the accumulation of the interest charge.5 However, the balance can still increase with time.
The fantastic thing about these optional partial repayment schemes is that you aren’t mandated to make any monthly repayments, and they can be efficiently switched ‘on or off’ as you wish.
Therefore, if this plans is for you and you want to see how much you can release, be sure to use our voluntary repayment estimator to get an idea of how ad hoc repayments could work for you.
How Much Can You Borrow with Voluntary Repayment Plans?
The amount you can borrow mainly depends on your lender’s qualification, maturity and property portfolio. However, there are other factors that some providers consider. They include the:
- The annual interest rate
- The yearly repayment plan you choose
Any additional factor will be based on your lender’s requirements.
The voluntary repayment plan comes in handy when you are looking to get financial freedom and continue owning 100% of your asset.
It’s time to enjoy your retirement.
If you need more information on lifetime mortgage plans though, be sure to click here and see how much equity you can release and chat with an expert.
How much money could you release?
A lifetime mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.