Voluntary repayment plans are the newest kid to the lifetime mortgage industry. Providers are always trying to create products that fit current homeowner needs. In keeping with this tradition, providers have started to offer flexible plans that fit a range of lifetime mortgage needs. Voluntary repayment schemes may be the perfect choice for you during retirement if you like having flexibility on your mortgage product.
How Voluntary Repayment Schemes Works
Almost any lifetime mortgage from roll-up traditional schemes to drawdown, interest only, and enhanced options can have a voluntary repayment option attached. Most providers are starting to offer voluntary repayment choices, thus there are quite a few choices in types of equity releases that can have flexible repayment options.
The loan structure is always the same as the regular product without the voluntary option. In other words, age and property value are used to qualify a person. The loan capital and interest is due at death or a move to long term care. Interest can be fixed or variable based on the provider.
The difference with this scheme is flexibility in making repayments should the homeowner decide it is a viable option. For example, you may take out a lifetime mortgage and suddenly find you do not need to use the entire amount. You may have a relative who left you an inheritance so you can repay a portion of the loan you have taken out. Whatever the situation that you may have enough income to make repayments, you have that option under these plans.
It works in a couple of ways. You can repay just interest leaving the capital balance unpaid yet ensuring there is inheritance for your beneficiaries since the difference in current market value of your home minus the loan amount due would be yours. The second option is to repay capital and interest.
If you repay capital and interest, you can repay up to 10% per annum. This means you pay no more than 10% of the capital amount back each year. If you pay more than the 10% you will be charged early repayment fees. If you do not have a voluntary repayment plan and you repay a portion of your lifetime mortgage, you are subject to early repayment fees. The point is with voluntary plans you waive the fees.
You have the same great lifetime mortgages available to you with all the standard benefits; however, you do not have to worry about the early repayment charges the standard loans carry. With flexible repayment you can make things more comfortable for yourself if you have the desire to repay a portion of the loan or all of it before death.
As with all lifetime mortgages there are certain disadvantages that come with each type. It is these disadvantages that you have to assess and determine if the loan is right for you. In terms of voluntary repayment plans, some providers will require you to continue making yearly repayments if you start the voluntary repayment option. Yet there are others who will not hold you to yearly repayments.
Require further information?
Use the form below to request further information about this, or any other scheme, and an FCA regulated independent equity release adviser will be able to assist you over the phone, face-to-face, or via email.