Voluntary Repayment Mortgage
A voluntary repayment mortgage can be a great plan for you if you are concerned about the impact of interest roll-up and also want the flexibility of when and how you make repayments against your loan balance. This plan is particularly flexible, allowing you to make ad-hoc repayments as you want, without having to follow a specific schedule. Those payments can go toward interest and/or capital and the repayment strategy you employ will have a direct impact on the size of your loan. Many voluntary repayment mortgages allow you to repay up to 15% of the original amount borrowed every year without incurring any penalties.
To qualify for a voluntary repayment mortgage, you must be at least 55 years old and own a property that has a minimum valuation of £70,000. You choose if you want to take your equity release as a lump sum payment or a drawdown plan. Interest is charged on the loan balance according to the terms of your plan. Instead of that interest accruing as it would with a lump sum plan, you are able to make voluntary repayments against the balance.
Because of the structure of this plan, you can still leave behind a sizable inheritance to your loved ones, which is what attracts many homeowners to it. If you make payments that cover the full interest of the loan, you will only ever need to repay what you originally borrowed. If you pay more than the equivalent of the interest, you will actually owe less than the borrowed amount. This means when your home is sold and your debt is paid back to the lender, there will be more leftover to be returned to your estate than there would with more traditional plans that do not require or allow any repayments.
Advantages of voluntary repayment mortgages
1. There is no proof of income required, which means you do not have to prove any affordability related to making repayments.
2. You choose when and how you will make payments against your loan balance, giving you control over your overall loan balance.
3. There are many options to make your repayments. Most lenders will allow you to pay using a cheque, online bank transfer, or debit card. Some lenders will even allow you to pay by standing order. You have a great deal of flexibility with this plan.
4. There are a variety of repayment strategies you can use to help control your balance:
• Interest-only repayments: Making payments that cover the full interest accruing on your loan will keep your balance stable at the amount you originally borrowed.
• Maximum repayments allowed: By making payments according to this strategy, you could pay your entire loan off in as few as 8 to 9 years.
• Random repayments: You can choose to just make random repayments when you find you have extra money. This repayment strategy will not keep your balance level and it will still increase given that you are not paying the full interest accruing. However, the balance will still be lower when it comes due than it would if you had made no payments at all.
5. There are no mandatory repayments required. You can essentially choose when to make repayments according to your own schedule. There are no penalties incurred for either making payments or for missing them, since you control when you make them and how much you pay.
6. These plans come with a fixed interest rate.
Disadvantages of voluntary repayment mortgages
1. If you do not keep up with payments that cover at least the interest as it accrues, your overall loan balance will still increase.
2. You can limit the inheritance you leave behind to loves ones, as is the case with all lifetime mortgage plans.
You can find out your maximum equity release available by using our equity release calculator or contacting our team of trusted advisers today. Voluntary repayment plans are a great option for any homeowner who wants the flexibility of making payments against their loan and who is concerned about the impact of interest roll-up. Many homeowners who choose this plan want to be able to leave behind an inheritance to their loved ones. If this sounds like you, we would be happy to discuss your options with you. Our freephone number is 0800 028 2098.