A significant boost in inheritance may be within reach for lifetime mortgage customers who opt to repay as little as £100 per month on rolled-up interest, according to research conducted by later life mortgage broker Responsible Life.
The study reveals that despite the growing flexibility of lifetime mortgage products, 75% of customers still choose to let interest roll up throughout their loan period.
Responsible Life’s analysis indicates that even small monthly interest repayments can considerably increase the equity remaining in a property at the end of a loan term.
For example, repaying £100 per month for five years on a £82,000 lifetime mortgage would result in nearly £15,000 of additional equity in a £400,000 property.
If these repayments were maintained for the entire 16-year loan term, the extra equity would rise to £34,000, a 10% increase in inheritance.
Steve Wilkie, executive chairman of Responsible Life, said: “One of the historic concerns amongst consumers/homeowners when it comes to taking out an equity release plan is the amount of rolled-up interest paid when the home is sold.
“Lifetime Mortgage products now offer customers the flexibility to pay off some or all of the rolled-up interest every month to leave more equity in the property, and yet three-quarters of equity release customers still choose not to repay any interest.”
He further emphasised the importance of customers understanding not only the costs associated with a lifetime mortgage but also how to manage them, stating: “It’s important customers not only understand the costs associated with a lifetime mortgage but how to manage those costs.
“Equity release has been criticised as expensive compared to other mortgage types, particularly the Retirement Interest Only Mortgage aimed at a similar age group.
“The criticism was aimed at the costs of letting the interest roll-up, but is now outdated. With the flexible repayment features now available in all Equity Release Council approved plans, customers now have control over the costs in a similar way to other mortgage types.”
