Voluntary Repayment Equity Release Plan
Voluntary repayment plans offer a level of flexibility to homeowners looking to release equity from their homes during retirement. The flexibility lies primarily in the ability of the homeowner to make repayments of interest and/or capital on the amount borrowed, allowing the homeowner to control their loan balance. This voluntary repayment feature is an addition to the equity release market, which now provides a number of features previously unavailable in the marketplace.
For a homeowner to be eligible for a voluntary repayment mortgage, the youngest homeowner must be at least 55 years old and their home must have a valuation of at least £70,000. The homeowner has a couple of options in choosing how to receive their cash and which plan they choose. There is the drawdown lifetime mortgage available as well as the lump sum mortgage. Interest is then applied to the loan balance according to the loan’s terms.
The difference between the voluntary repayment mortgage and other equity release products is that it allows the homeowner to make repayments against their loan balance. The homeowner is able to pay up to 15% of the original amount borrowed which allows the homeowner to control their overall loan balance, a feature that makes this product unique when compared to others available in the equity release marketplace.
While the homeowner must qualify based on age and property value, there is no proof of income necessary to qualify for a voluntary repayment mortgage. This often makes this product particularly attractive to homeowners who may have tried to get a different mortgage product but were denied based on income restrictions.
There are several options when it comes to making payments on a voluntary repayment mortgage. Some products allow the homeowner to make repayments against only the interest that accrues on the loan balance. Others allow the homeowner to pay not only the interest but some of the capital as well, which means that over time the homeowner may be able to pay the entire loan balance back if they choose to do so. Lastly, some equity release products allow the homeowner to make random repayments on their loan. This is perhaps the most flexible option, allowing homeowners to choose when they are most able to make payments.
Voluntary repayment mortgages do not mandate payments which offers homeowners even more flexibility. The homeowner can decide if they want their voluntary payments turned on or off depending on the homeowner’s financial situation. These products are particularly beneficial for homeowners who want flexibility in their lifetime mortgage product and who want to control the balance of their loan while taking advantage of a fixed interest rate.
The Voluntary repayment mortgages currently on the market provide a level of flexibility for homeowners that is not always available with other equity release products. Homeowners are able to control their loan balance to at least some degree and can choose a plan that allows them to make payments based on a frequency and amount that works for their individual situation.