Over50choices has calculated that consumers could pay out more than £1.06bn in compound interest on the £699m borrowed in equity release in Q1 2023 over a 15-year period, assuming average rates of 6.2%.
However, the firm suggests that by making voluntary penalty-free partial repayments, consumers could significantly reduce the amount of interest they pay.
For instance, the average sum repaid per plan in 2022 was £1,133. Over a 15-year period, one repayment on a typical new lifetime mortgage of £102,405 could save a consumer £1,732 in interest. If the same payment were made annually over 15 years, it could result in savings of £11,884.
To help consumers understand the impact of compound interest on a lifetime mortgage, Over50choices has launched a new-to-market calculator.
The later life planning company’s “Boomer Barometer” study found that only 22% of over-55s were aware they could make early repayments on equity release, and just 16% knew that the interest payable on an equity release lifetime mortgage was compounded.
According to the Equity Release Council, the number of voluntary penalty-free partial repayments made by equity release customers increased by 48% last year. Over 90,000 equity release customers reduced their loans by £102m in 2022 by making 190,374 partial repayments throughout the year.
Ashley Shepherd, founder and managing director at Over50choices, said: “Despite its popularity in recent years and the reforms made for the benefit of consumers, the equity release market is still not fully understood by its target market. Our new calculator aims to educate and empower consumers, helping them to fully understand the implications of equity release before making such a significant decision.”
