How can I reduce the cost of my lifetime mortgage?
Other ways to reduce the cost of your lifetime mortgage However, if you are unable to make repayments towards your lifetime mortgage, there are other options that could help to manage the size of your loan. Consider a drawdown plan However, a reduction in interest rates in the future isn’t guaranteed.
All of the plans we recommend come with options to help reduce the total cost of the borrowing if that’s important to you; for instance, if you wish to leave a larger inheritance. Making repayments Even though there are typically no monthly
With a drawdown lifetime mortgage, you only take out the money you need when you need it. This can help reduce your total cost of borrowing, as interest is only charged on the money you release, rather than the full amount available. You can read more about this on page 16. Remortgage to another equity release plan in the future If interest rates reduce in the future, you may have the option to remortgage your current plan to secure a lower rate. By paying a lower interest rate, you can reduce your total cost of borrowing.
It’s also important to remember that an early repayment charge (ERC) may be payable if you choose to remortgage your equity release plan. However, the plans we recommend come with fixed or gilt-based ERC's. Fixed ERC's are defined from the outset, usually based on a sliding scale e.g. as a percentage of the amount to be repaid. Gilt-based ERC's can vary depending on the gilt rate applicable at the time of repayment and are therefore not known at the outset ( although a maximum limit applies).
your total cost of borrowing would be £223,915*. However, by making a monthly £250 repayment, after 15 years, you’d owe £146,440 – with a total cost of borrowing, including repayments, of £191,440. This means, by repaying £250 a month, you, and your beneficiaries, could benefit from a £32,475 net interest saving.
repayments to make with a lifetime mortgage, all the plans we recommend come with the option to make ad-hoc or regular repayments to help reduce your total cost of borrowing. Even if you’re only able to make small repayments, it will help reduce the amount of interest you pay over the lifetime of your loan. In this example, if you were to borrow £81,703 and make no repayments at all, after 15 years,
How making repayments can help you manage your total cost of borrowing Total cost of borrowing making no repayments would be £223,915
Total cost of borrowing repaying £250/month would be £191,440 Net interest saving of £32,475
— £142,212
Interest accrued
— £81,703 Initial loan — £64,737 — £45,000
Repayments made
Interest accrued
— £81,703 Initial loan
Initial release amount of £81,703**. Plan subject to a fixed interest rate of 6.74%** MER. Interest and repayments shown over a 15-year period. *Based on a fixed 6.74% MER (Monthly Equivalent Rate) interest rate. **Key Market Monitor Q1, 2023
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