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Equity Release Supermarket News How to Reduce your 'Effective' Interest Rate by Making Flexible Voluntary Payments
How to Reduce your 'Effective' Interest Rate by Making Flexible Voluntary Payments
Equity Release Supermarket News How to Reduce your 'Effective' Interest Rate by Making Flexible Voluntary Payments
Flexible partial voluntary payments

How to Reduce your 'Effective' Interest Rate by Making Flexible Voluntary Payments

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Mark Gregory
Checked for accuracy and updated on 31 October 2023

Did you know that with all equity release plans taken out today you have the option to make flexible voluntary payments?

Although equity release gives you the option of making no repayments at all, if you choose to make optional, partial voluntary payments you could safeguard an inheritance and control the balance of your Lifetime mortgage.

The Equity Release Council who set the standards for the industry now insist that all plans must allow customers to repay up to 10% of the capital they borrowed each year without penalty. Therefore, customers can make monthly, quarterly or adhoc payments should they choose to do so.

How does this work?

Following the completion of her equity release research using smartER, on the Equity Release Supermarket website, Mrs Dinning contacted us directly as she was keen to make optional partial payments for at least the next 7 years.

Mrs Dinning explained that at 63, she is employed, she enjoys her job and expects to work until she is 70. Ideally, she wanted to borrow £50,000 to make some home improvements, replace her car, and make a gift to her daughter to help her onto the property ladder.

Mrs Dinning explained that she would be happy to make optional partial payments for the next 7 years, but she wanted the reassurance that she was not committed to making payments, should her circumstances change.

Our Equity Release Supermarket adviser explained that she could consider the Legal & General Optional Payment Lifetime Mortgage which would allow her to choose how much she paid each month. With the option of paying all of the interest, part of the interest, or no payments at all.

Our adviser explained that if she borrowed £50,000 the current interest rate with Legal & General is fixed at 6.10% MER for the rest of her life, and she can make payments indefinitely. However, if she wanted flexibility and choice she could make payments until she was 70 and then decide if she wanted to continue. Her safeguard was that if she decided to stop making payments due to a change in her circumstances, she could do so and let the interest roll-up or just make Adhoc payments at her discretion.

She asked how much her payments would be, and our adviser explained that she could pay the 6.10% interest and make full payments, pay some payments, and reduce the effective roll-up interest to 3%, or make no payments at all.

How much were the payments and what would she owe after 7 years?

Our adviser explained that by making a contribution of £254.17 per month she could cover the full amount of interest or a reduced payment of £130 per month, and she would half the roll-up of interest.

Lifetime Mortgage Optional Full Payment Optional Partial Payment No Payment Made
Loan - £50,000 6.10% MER 6.10% MER 6.10% MER
Monthly Payment £254.17 £130.00 £0.00
Balance after 7 years £50,000 £62,921 £76,537

Mrs Dinning decided that she could afford to make the full monthly payment and she felt reassured that she could stop making payments at any time. Our adviser explained that If she stopped making her monthly interest payments, the lifetime mortgage would convert to full interest rollup and she could not restart the monthly payments. However, she could still make adhoc payments meaning she could still repay 10% of the capital she borrowed each year without penalty at her discretion.

If you have any further questions regarding flexible voluntary payments, you can find your fully qualified Equity Release Supermarket adviser by visiting our find an adviser page here or call our Freephone number 0800 088 5924.

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