Lifetime mortgage with voluntary payments

Getting a lifetime mortgage with voluntary payments is a complicated process but with the correct advice. It is possible. Here in this article on “Lifetime mortgage with voluntary payments” we will explain all the possibilities and answer the frequently asked questions such as what is a voluntary repayment lifetime mortgage, how does a lifetime mortgage with voluntary repayments work, what do I need to consider with an equityThe difference between the value of the property and the amo... lifetime mortgage with voluntary payments, can I get equity release with repayment options etc.

A lifetime mortgage is one of the most popular options for equity release. It grants you immediate access to at least some of the equity otherwise tied up in the home you own – while you continue to be able to live there.

One of the nagging problems for homeowners tempted to arrange this type of equity release, however, is the fear that rolled-over interest payments on the loan may impose an intolerable burden when the accumulated debt of capital and interest becomes repayable at the end of the agreement.

A more flexible lifetime mortgage – with the option for making additional repayments as and when you choose – could be the solution for easing those fears.

What is a voluntary repayment lifetime mortgage?

The equity release product of a lifetime mortgage is like other mortgages, as there are two elements to the debt that need to be repaid – the capital and the interest that accrues on that loan.

Unlike other mortgages, however, borrowers do not need to repay the capital until the end of the agreement (when they die or move into long-term residential care). Frequently, they have the choice of rolling over monthly interest repayments until the lifetime mortgage reaches full term.

The capital amount initially borrowed and the interest that accumulates throughout the lifetime of the mortgage may result in a substantial sum by the end of the mortgage term – when your home is sold to cover those repayments, and the significantly reduced balance is made over to the designated beneficiaries of your estate.

Therefore, some lifetime mortgages and drawdown plans give borrowers welcome flexibility in the repayment of both capital and interest – to prevent the debt from accumulating to such substantial proportions.

Equity release with the flexibility of this nature is achieved by way of a lifetime mortgage with voluntary payments – effectively, a flexible lifetime mortgage – and allows early repayments of the debt, as and when you choose, without incurring early repayment penalties.

How does a lifetime mortgage with voluntary repayments work?

The aim of a lifetime mortgage with voluntary payment options is to let you make repayments of either capital or interest – or both – as and when you have the means to do so. In this way, the ad hoc voluntary repayments you make can reduce the size of the accumulated debt that remains at the end of the equity release agreement (that is, when you die or move into long-term residential care). Moreover, with the debt reduced, you may expect a greater balance in the cash remaining after the sale of your home – so enhancing the size of the inheritance you can leave for your loved ones.

Voluntary repayments

A lifetime mortgage with voluntary payments typically gives you the choice of whether to make additional repayments of either interest or capital – or both. In any event, they remain voluntary repayments – you decide whenever you want or can make them and, within certain prescribed limits, how much you repay.

The mortgage provider is in the business of making loans, so most will impose an upper limit on the amount that can be repaid each year. With some plans, that annual limit is 10% of the original loan. With others, it might be 12%. Finally, some might allow annual repayments of up to 40% without penalties. At these rates, of course, you could manage to repay the whole mortgage within just a few years.

If you are interested in the evident flexibility offered by a lifetime mortgage with voluntary repayments, you will need to consult an experienced financial adviser – such as us here at NeedingAdvice.co.uk – for more details about how you will be able to make any repayments, the implications of annual limits on the amounts repaid, and the precise terms and conditions of any deal.

What do I need to consider with an equity lifetime mortgage with voluntary payments?

The most important of the conditions to remember if you have this type of flexible lifetime mortgage is the annual limit on the number of voluntary repayments you can make.

As we have noted, most plans will have an upper annual limit; if you exceed that limit, you will become liable for early repayment charges. These penalties tend to vary from one provider to another, and many have variable rates that change – becoming progressively less onerous the longer the mortgage runs. So, in the first five years, for example, early repayment charges might be as high as 7%, but that rate is reduced to 5% in the following three years, and then any penalties for further early repayments are lifted altogether.

Depending on the amount of any lifetime mortgage you have repaid when it reaches full term – i.e., when you die or move into long-term residential care – the remaining balance to be passed on as an inheritance after the sale of your home may be significantly reduced.

Can I get equity release with repayment options?

There are several products available if you want the flexibility of a lifetime mortgage with voluntary repayment options – and each comes with its set of terms and conditions. Typically, for example, you will need to be at least 55 years of age, and the size of any mortgage will depend on the amount of equity in your home and its current market value (although this latter limit might be set very low at, say, a minimum of £70,000).

Next steps

Any decision to arrange equity release on your home is serious and requires careful consideration. If you choose a lifetime mortgage with voluntary repayment options, there are additional variables you will want to discuss with professional financial advisers.

Here at NeedingAdvice.co.uk, we have the expertise and experience to offer just that help and guidance – from choosing a suitable product to suit your needs and circumstances through to making a formal application.

FAQs

What is a equity release plan?

Equity release plans are designed to enable homeowners aged over 55 to access their savings and capital to pay off existing mortgages or buy a new property. They usually involve taking out a lifetime mortgage which allows borrowers to borrow against the value of their home, typically up to 80% of the property’s value. If you are interested you can read more in our equity release category.

What are the different equity release schemes by the UK government?

There are many government schemes for equity release that you can apply for. If you are interested, you can contact an independent mortgage broker who will advise you on what scheme would best meet your needs.

What is meant by drawdown lifetime mortgage?

A drawdown lifetime mortgage is similar to a fixed rate lifetime mortgage, except that instead of paying interest onlyA mortgage where the borrower only pays the interest on the ... until the end of the loan period, you make regular mortgage payments throughout the life of the mortgage. This means that you can use the money you save to fund other expenses, such as travel, holidays or even a deposit for a house purchase.

What are the pros and cons of equity release?

The main advantage of equity release is that you can take control of your finances and stop worrying about how much you owe on your mortgage. You also avoid having to worry about repaying the debt, so you don’t have to think about monthly repayments. However, if you decide not to sell your home, you could find yourself trapped in a situation where you cannot afford to live somewhere else because you still owe too much on your mortgage. You can read more about pros and cons of equity release in our article here.

Can I make voluntary overpayments to reduce the mortgage interest?

Yes, you can make voluntary overpayments towards reducing the mortgage interest. The mortgage provider may agree to accept these overpayments but it is important to note that they do not count towards the total amount you must repay. Overpayments made after the initial term of the mortgage contract ends will not affect the final balance due. If you are interested you can contact equity release advisor to help you with the application.