New figures suggest that more homeowners are exploring later-life borrowing before they reach 70. The trend highlights why it’s important to understand how interest works and consider whether borrowing fits your plans.
Equity release is often associated with people in their seventies or eighties, but some homeowners are exploring later-life borrowing sooner and making repayments to reduce interest. Recent figures from more2life show that 63.6% of its customers using a product with interest repayment features were under 70 during the first nine months of the year. People aged 60 to 64 made up the largest age group, at 25.9%.
These figures relate to one lender’s customers, so they don’t necessarily reflect the whole equity release market. However, they highlight an important point: later-life borrowing can involve decisions about how interest is managed over many years. It’s worth understanding the options before deciding whether a loan is right for you.
With a typical Lifetime Mortgage, interest is usually added to the amount borrowed rather than paid each month. This is known as compounding – interest is charged on the loan and on interest already added. Over time, this can increase the total amount owed and reduce the equity left in the property.
Voluntary payments
Some Lifetime Mortgages allow borrowers to make voluntary payments towards the interest, subject to the product’s terms. Paying some or all of it may slow the loan's growth, which could help preserve more of your property’s value for the future. However, repayments must be affordable and sustainable, especially if your income changes or you stop working.
Steve Dale, MB Associates’ Equity Release Specialist, says: ‘Most lenders in this sector are now offering discounted rates for those who commit to making payments, which is great for those people who still feel able and willing to contribute. Importantly, these are committed payments, not contractual, so if you cannot afford to make the payments at any time, you can stop. All that happens is that you lose the discount. You don’t lose your home.’
The figures also reflect changes in retirement plans. Many people in their late fifties and sixties remain in work, while others may have different income needs or plans for their property. That doesn't mean equity release suits everyone. Alternatives such as downsizing, using savings, or considering other forms of borrowing may also be worth exploring.
Exploring the long-term impact
Before deciding, consider how long the loan could run, how interest may build up, the effect on your estate, and any benefits or support you receive. A qualified later-life lending adviser can explain the options and help you compare them with other ways to meet your needs. Take time to understand the terms and discuss the decision with anyone who may be affected.
More Information
Steve Dale is a highly experienced equity release specialist and a member of the Equity Release Council. He’s here to help with any questions about equity release or other later-life borrowing options.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. You should always think carefully before securing a loan against your property.