If you’re considering an equity release plan but would like to leave a considerable inheritance and stay on top of the lifetime mortgage scheme, a voluntary repayment plan might be the right product for you. Here, we guide you through how it works, the benefits, and what you should consider.
A voluntary repayment plan is an equity release scheme that allows you to borrow money against the value of your property. Unlike a standard lifetime mortgage, where interest compounds over time until you sell your property at the end of the plan, you can start repaying the loan amount and interest from the start with a voluntary repayment plan.
This option ensures that the amount you have to pay off at the end of the plan is lower, leaving a larger inheritance for your loved ones. How much you pay and when is up to you, with a 40% limit on the amount borrowed yearly, penalty-free.
To be eligible for this scheme, you need to meet the usual requirements of a standard lifetime mortgage plan:
Like a standard lifetime mortgage, you will borrow cash against the value of your property. That loan will have an interest rate that will compound over time. However, unlike a standard lifetime mortgage, where you don’t make monthly repayments, you can start making voluntary payments from the getgo to cover the interest rate cost and part of the loan over time.
You must also choose whether you want a lump sum payment or the drawdown option, where you release short sums of cash over time.
So, you might be wondering – why wouldn’t I receive a lump sum now and then pay the loan and interest cost at the end of the plan when I pass away or go into full-time care? The main benefit, of course, is that the amount you have to pay at the end of your plan will be much smaller than with other plans.
This means that you can leave a much larger inheritance to your loved ones. The cost of your mortgage will also not rise as high due to interest roll-up compared with other lifetime mortgage schemes. Here are some other advantages to a voluntary repayment plan:
If you’d like to know how a voluntary repayment plan can be beneficial to your specific requirements, contact a professional advisor to discuss your options.
The amount of money you can release will depend on your age and the value of your property. You can find helpful online quote calculators that can provide an estimate of how much you can borrow.
Here’s an example quote:
Note that how much is available to you will depend on your circumstances and how much your property is worth.
A voluntary repayment plan is a fantastic way to get access to funds in your retirement whilst still staying on top of the lifetime mortgage scheme. There are, however, certain factors that you should consider before making a decision.
You can still apply and be approved for a voluntary repayment plan if you still have an outstanding balance to pay on your standard mortgage. However, the lender will use part of the funds you release to clear the due amount and become the lead mortgage provider of the property.
As a result, an equity release scheme might not be optimal for you if you still have a significant amount to pay on your first mortgage.
If you’re worried about the lifetime commitment of an equity release scheme, you can rest assured that you can exit the plan early. It’s normal, circumstances change, and you might not need it anymore.
In this case, the lender will apply an early repayment fee which could be costly. It all depends on how far into the plan you’ve gone. Make sure to consider the fee and the reason for exiting the plan to ensure that it’s worth your while.
You should always get in touch with an advisor and broker before making a decision. They can guide you on the best course of action. You can use a broker and a comparison engine online to search the market for the best rates. You should also be proactive and get quotes from multiple providers to compare. Remember that the first quote you receive isn’t necessarily the best one.
There are many advantages to a voluntary repayment plan that you can benefit from if you’re in or nearing retirement age. A voluntary repayment plan is best if you have the disposable income to keep up with the monthly payments. If you find that the cost is too high, you can always opt for an interest-only lifetime mortgage. This would reduce your monthly cost as you only pay off the interest each month.