According to later life mortgage broker Responsible Life, which surveyed around 3,000 people, repaying a small percentage of the interest on the loan every month can increase the amount of the equity in the home at the end of the loan time.
The firm based its analysis on a £400,000 property with no mortgage and a lump sum lifetime mortgage of £82,000, n average interest rate of 6.65 per cent and an average loan term of 16 years.
Responsible Life said if a customer lets the monthly interest of £454 roll-up over the term, then there would be £163,066 equity left in the property once it is sold at the end of the term.
If the borrower made small interest repayments of £100 per month for five years then there would almost £15,000 more equity left in the property at around £177,781.
If a borrower made interest repayments of £100 per month for the term of the loan, the equity left in the property would be £197,161 or £34,000 more than if no interest was repaid.
The brokerage said this would equate to a 10 per cent boost in inheritance.
It added that if a borrower repaid 50 per cent of the rolled-up interest over the 16-year period, the equity in the property would grow by around a quarter and come to almost £100,000.
Steve Wilkie (pictured), executive chairman of Responsible Life, said there were “historic concerns” with consumers and homeowners when it comes to equity release plan and the amount of rolled-up interest paid when the home is sold.
He continued: “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.
“It’s important customers not only understand the costs associated with a lifetime mortgage but how to manage those costs.”
Wilkie said equity release had been criticised as “expensive” compared to other mortgage products, especially retirement interest-only mortgages, but that the “criticism” aimed at letting the interest roll-up was “outdated”.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,” he noted.
