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 upto 10% of the original amount borrowed each year with NO penalty.Historically, equity release schemes have been roll-up lifetime mortgages whereby nothing could be repaid and consequently the mortgage balance increased over time, in some cases doubling every 10-12 years. Now voluntary repayments plans have been introduced which allow partial repayments, enabling control of the balance in accordance with the homeowners and possibly beneficiaries wishes.
How Does The Optional Partial Repayment Plan Work?Voluntary repayment plans commence from age 55 with a minimum property value of £70,000. The homeowner chooses from a lump sum or drawdown lifetime mortgage & takes a tranche of tax free cash from the property. Interest will then be charged to plan in accordance with the schemes terms. However, rather than interest accruing, repayments back to the lender which are limited to a maximum 10% of the original amount borrowed.
The beauty of any voluntary repayments is that NO proof of income is needed to qualify. Therefore, where traditional mortgages have been declined, the optional partial repayment scheme can replace and be a great solution to providing an interest only lifetime mortgage or capital & repayment mortgage in retirement.
Voluntary repayments are achieved without any admin fees or penalties applying and purely at the discretion of the homeowner. Any payments can be made following contact with the lender to ensure that the 10% limit isn’t breached. The transfer of funds are usually made by writing a cheque to the lender or by online bank transfer.
Partial Voluntary Repayment Mortgage Strategies In ActionDepending on how the future equity release balance is to be managed, several repayment strategies can be initiated as follows: –
- make repayments of interest-only – will keep the future balance level, thus protecting the equity value within the property & any inheritance the homeowner wishes to pass onto their beneficiaries.
- utilise the full 10% voluntary repayment allowance – not only repays the interest, but also an element of the capital too. If permitted, & this process continues over 16-17 years, the whole balance can be repaid!
- make purely random repayments – whenever surplus savings arise, selectively paying this off the balance will slow down the compounding effect of the interest, however the balance could still increase over time.
Which Companies Offer Flexible Voluntary Repayment Schemes?There are currently six lifetime mortgage providers that operate partial repayment plans who are: –
- Aviva – Flexible Lifestyle Option & Lump Sum Max Plans
- Legal and General – Premier Flexible, Flexible, Flexible Plus, Lump Sum & Lump Sum Plus Plans
- Hodge Lifetime – Flexible Lifetime and Lump Sum Lifetime Mortgages
- Retirement Advantage – Voluntary Select Gold Lifetime Mortgage
- More2Life – More2Life Premier Choice Plan Series 2
- OneFamily – Lump Sum & Voluntary Repayment Plans (fixed & variable rates)
These are lifetime mortgages. To understand the risks & features request a personalised illustration.