A Complete Guide to Voluntary Repayment Lifetime Mortgages
I think you’ll agree with me when I say…
Trying to wrap your mind around voluntary repayment plans 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 guide, you can finally get to understand the pros, cons & criteria of taking out a voluntary repayment plan.
If this scheme does not suit your needs, however, be sure to check out the on ‘Types of Lifetime Mortgage Schemes’ get to choose the plan that will help you solve your financial needs.
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What is a Voluntary Repayment Lifetime Mortgage?
The voluntary repayment lifetime scheme 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, this non-compulsory partial payment plan allows you to repay up to 15 per cent of the original amount borrowed each year (dependent on the plan provider) with no penalties.
How Does an Optional Partial Repayment Plan Work?
Almost any lifetime mortgage 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 lenders are offering this plan at the moment.
For you to qualify for this plan, you must first be age 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 plan. 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 plan provider, thus effectively 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 A Voluntary Repayment Plan
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 plan 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 percentage limit isn’t breached
You transfer the funds by cheque, debit card, online bank transfers or even a standing order depending on your plan provider.
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 lenders are initiating several repayment strategies. They include:
1. Making Interest-Only Repayments
With an interest-only plan, 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
The allowance plan allows you to repay not only the interest but also an element 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 plan to sort the balance, it helps in slowing down the rolling up effect of the interest charged. 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 plan is for you and you want to see how much you can release, be sure to use our voluntary repayment calculator to get an idea of how making ad hoc repayments could work for you.
How Much Can You Borrow with a Voluntary Repayment Plan?
The amount you can borrow mainly depends on your lender’s criteria, age 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 element will be dependent 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 property.
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 for free.
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.