With a lifetime mortgage there is nothing to pay each month unless you choose to, so the interest is added to the debt and then charged on the larger amount. This shows what that does over thirty years, and the four things that change it.
Everybody nods at that phrase. Almost nobody pictures the number. Here it is, worked out, so you can look at it before you decide anything.
Equity release may involve a lifetime mortgage, secured against your property, or a home reversion plan. It will reduce the value of your estate and impact funding long-term care.
With a lifetime mortgage there is nothing to pay each month unless you choose to. The interest is added to what you owe, and then next year’s interest is charged on that larger amount as well. That is all “rolling up” means, and this is what it does.
An illustration, not a quote and not our verified rate. It is used because it is close to where the market floor has been sitting. Your rate depends on your age, your property, how much you borrow against its value and which product you are placed on, and it will not be this number.
The arithmetic is ours and you can check it: each row is £50,000 multiplied by 6.2% compounded for that many years.
| After | You would owe | Times |
|---|---|---|
| day one | £50,000 | 1.00 |
| 5 years | £67,545 | 1.35 |
| 10 years | £91,246 | 1.82 |
| 15 years | £123,264 | 2.47 |
| 20 years | £166,518 | 3.33 |
| 25 years | £224,948 | 4.50 |
| 30 years | £303,882 | 6.08 |
A rate a little under two points higher takes four years off the doubling time. That is why the difference between two quotes matters far more here than it would on a mortgage you were paying down.
On a repayment mortgage a slightly higher rate costs you a little more each month. Here it changes what your family inherits, because nothing is being paid off in between.
The tables above assume the worst version: the full amount, taken on day one, with nothing paid. Most of that is a choice rather than a feature of the product.
Most plans allow voluntary payments. Paying the interest each month stops the debt growing at all: it stays at what you borrowed. Paying part of it slows the growth rather than stopping it. Both are optional, and the Equity Release Council requires a plan to allow them within stated limits.
The maximum is rarely the right answer. Half the money compounds to half the debt, and the maximum figure on a calculator is a ceiling rather than a recommendation.
On a drawdown plan you take an initial amount and leave the rest in a reserve. Interest is only charged on what you have actually taken, so money you have not needed yet is not compounding.
The one thing nobody controls, and the one that matters most. The tables above are the same arithmetic at every age; what differs is how many rows of them you live through.
None of this can leave your estate owing more than the property sells for. That is what the no-negative-equity guarantee does, and it is a condition of Equity Release Council membership. What it does not do is protect what is left over: the guarantee caps the debt at the value of the house, and the difference between those two things is your inheritance.
Whether any of this is too much. That is not a judgement a page can make: it depends on what the money is for, what else you have, and what you want to leave behind. Some people look at the twenty-year row and stop. Others look at it and decide it is worth it. Both are reasonable.
What we would say is this: an adviser has to give you an illustration with these exact figures on your actual rate. Ask for it, read the table, and take it home before you decide.
Equity release requires repaying any existing mortgage. Money released, plus accrued interest, would need to be repaid upon death or moving into long-term care.
All four are for an adviser, and all four have a number for an answer.
What would I owe at year ten, fifteen and twenty on the actual rate I am offered?
Ask for the figures, not the rate. An adviser must give you an illustration showing exactly this, and it is the single most useful page of the whole document.
What voluntary payments does this plan allow, and up to how much?
Paying the interest stops the debt growing. The limits are set by the product and they differ.
Would drawdown suit me better than taking it all at once?
If you do not need all of it now, the part you leave behind is not compounding. There is usually a trade-off in the rate.
What happens to the figures if I take less?
Worth asking explicitly. Advisers can model it and the difference over twenty years is larger than most people expect.
Short answers to the things that come up most. None of it is advice, and every figure on this page carries its source.
Interest is added to what you owe rather than paid, so the following year interest is charged on the interest as well. That is why the debt grows faster the longer the plan runs.
Pay the interest, or some of it. Most plans allow voluntary payments, and paying the interest each month stops the debt growing at all: it stays at what you borrowed. Paying part of it slows the growth rather than stopping it.
Directly. Half the money compounds to half the debt. The maximum figure on a calculator is a ceiling rather than a recommendation, and the maximum is rarely the right answer.
You take an initial amount and leave the rest in a reserve. Interest is only charged on what you have actually taken, so money you have not needed yet is not compounding.
Not where the plan carries a no-negative-equity guarantee, which is a condition of Equity Release Council membership. Whatever the debt has grown to, it cannot exceed what the property sells for, so no debt passes to your family.
Equity release may involve a lifetime mortgage, secured against your property, or a home reversion plan. It will reduce the value of your estate and impact funding long-term care.
One qualified equity release adviser. They will go through your figures and tell you if there is a better answer. It costs nothing and commits you to nothing.
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