The Equity Release Council (ERC), which published the figures, says that these penalty-free repayments will save customers a total of almost £169m in borrowing costs over the next 20 years.
Here, Which? explains how voluntary repayments work, how much they can save you, and how to weigh up if equity release is right for you.
If you take out an equity release product recommended by HUB Financial Solutions, Which? will earn a commission to help fund our not-for-profit missionHow do equity release voluntary repayments work?
Unlike ordinary mortgages, lifetime mortgages don't require you to make any monthly repayments.
Instead, interest is rolled up and added to the loan each month. This increases the amount that will ultimately be owed. But by making voluntary penalty-free repayments, you can reduce your total borrowing costs.
Lenders that meet these standards will typically allow you to repay 8%-15% of the initial loan each year without penalty.
How much can you save by making voluntary repayments?
By making regular £100 monthly repayments, the customer would save almost £17,000 over a decade in total borrowing costs, and almost £50,000 over 20 years. Those savings increase to nearly £34,000 and £99,000 with a regular £200 monthly repayment.
These examples assume an interest rate of 6.57% - the average rate for new customers in the second half of 2023.
Jim Boyd, CEO of the Equity Release Council, said: ‘Small repayment habits add up to significant savings over time. Voluntary repayments make it possible for customers to access property wealth in the here-and-now while increasing the chances of preserving something to leave behind as a traditional inheritance.’
Pros and cons of equity release
The amount you can borrow via equity release depends on your age and how much your home is worth. You'll need to be at least 55, but the older you are, the more you can borrow. The maximum you can borrow is around 55%.
Equity release can prove useful if you have value tied up in your property but are worried about having enough to live on in retirement or to cover care costs.
Borrowing in this way does come with potential downsides. Not making any repayments on your loan will mean you end up paying far more than you’ve borrowed due to the compounding of interest. This could mean the value of your property is wiped out entirely.
Using equity release will most likely reduce the size of your estate and the amount you can leave behind for loved ones, as the lender is repaid before the rest is divided among beneficiaries. For this reason, it's a good idea to discuss with your family first.
Find out more:How to arrange equity release
You'll first need to take regulated advice from a qualified equity release adviser. This is a requirement of the Financial Conduct Authority.
Your chosen adviser should hold one of the following approved qualifications:
An adviser who isn't restricted to recommending products from just one or two firms is the preferable option.
Brokers of equity release products such as HUB Financial Solutions, Age Partnership and Key Later Life Finance can look across the whole of the market to find the product that meets your specific requirements.
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source https://www.which.co.uk/news/article/equity-release-how-making-small-repayments-can-save-you-thousands-acYYc2N37UzO