In 2013, Hodge Lifetime launched their schemes known as voluntary repayment equity release. Aviva and Stonehaven soon followed realising there is a market for special products that are still based on other lifetime mortgages. The new formation of equity release plans allows for more flexibility of interest only lifetime mortgages. The idea behind voluntary repayment schemes is to improve the life of individuals over 55.

Defining a Voluntary Repayment Scheme

Voluntary repayment plans allow homeowners to repay a portion of the lifetime mortgage capital sum after the first 12 months. Some schemes allow the repayment to occur on a roll-up lifetime mortgage where interest is compounding onto the back of the capital sum thereby increasing the overall balance. It reduces the inheritance to leave the roll-up mortgage gaining interest.

Voluntary repayment schemes take care of this issue by letting some of the funds to be repaid particularly for those who may have taken out the loan at age 55 to 65. Up to 10% of the original capital sum can be repaid each year, without penalty charges. Homeowners can determine how much is repaid and when it is paid.

Interest only lifetime mortgages can also be used as a voluntary repayment scheme where interest is always repaid, but up to 10% of the principle amount can also be repaid in the year. Like standard lifetime mortgages, it keeps the inheritance available or even increasing when payments are made.

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Advantages of Voluntary Repayment

The main advantage is keeping an inheritance available for beneficiaries. Another benefit is not being charged the penalty fees usually associated with lifetime mortgages. It means there is not as much in fees and interest being paid as with more traditional equity release products.

Disadvantages of Voluntary Repayment

It does require making a payment whether it is once a year or several times throughout the year. Once the decision to make repayments is made, the homeowner usually has to continue making a yearly payment. While this is not always the case and it does differ between providers, it is an important factor to discuss with an independent financial adviser.

A Little on the Different Plans

Hodge’s flexible plan is based on disposable income, where interest has to be repaid and an elective £10,000 or 10% can be repaid each year. Aviva took the Hodge Lifetime product a step further to make it more appealing to homeowners. With Aviva flexi plans there is a potential to repay the entire loan amount before death as long as the 10% repayment occurs each year after the initial 12 months. There is full redemption of the plan thus saving the homeowner from interest accrual for life. Stonehaven offers flexible repayment in terms of the interest amount. Even if interest accruing on an interest only lifetime mortgage is more than £25 per month, all a homeowner needs to pay is the minimum amount. They can pay the full amount of accrued interest, but for those who do not have it a minimum can be set up. As you can see there are advantages to each provider as well as this type of loan.

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