How interest rolls up on equity release
A lifetime mortgage is the most common type of equity release in the UK. You borrow against your home and usually make no monthly repayments. Instead, interest is added to the loan and the whole balance is repaid when the home is sold, normally after you die or move into long-term care.
Because interest is added to the balance and then charged on itself, the amount owed grows faster each year. Over a long period the balance can become several times the amount you released, which reduces what's left from your home's value for you or your family.
Some lifetime mortgages let you pay some or all of the interest, or take the money in smaller amounts as you need it, which slows the growth. This calculator shows a single amount released with no repayments.
Worked example
Releasing £60,000 at 6.5% a year, compounded monthly, the balance after 15 years would be £158,652.05. That's £98,652.05 of interest, and a balance 2.64 times the amount released.
After 10 years the same loan would be £114,731.03, and after 25 years £303,371.87. The longer the loan runs, the faster it grows.
Get advice before you decide
Equity release is a regulated financial product, and you'll need to speak to a qualified adviser before taking it out. They can explain the costs, your other options and how it could affect your inheritance and any means-tested benefits.
Rates, fees and features vary between products, so use your own figures from a quote. This calculator doesn't include fees, early repayment charges or changes in your home's value.
Inputs for the equity release compound interest calculator
Amount released
The amount you borrow against your home at the start.
Annual interest rate
The yearly interest rate on the lifetime mortgage. The rate shown is only an example, so enter the rate from your quote.
Time period
How many years the interest rolls up with no repayments. Try a few different periods, as nobody knows how long the loan will run.
Interest compounds
How often interest is added to the balance: daily, monthly, quarterly or annually. Your quote or key facts document will say how interest is charged.
CALCULATOR QUESTIONS
Equity release compound interest calculator questions
How much will I owe on equity release?
It depends on the rate and how long the loan runs. £60,000 at 6.5% compounded monthly would grow to £158,652.05 after 15 years with no repayments.
Why does an equity release balance grow so quickly?
Interest is added to the loan and then charged on itself. With no repayments, the balance grows faster every year.
Can I slow down the roll-up?
Some lifetime mortgages let you pay some or all of the interest, or release money in smaller amounts when you need it. An adviser can explain which options suit you.
Do I need advice to take out equity release?
Yes. Equity release is regulated, and you'll need advice from a qualified adviser before you can take it out.
Does this show what my family will inherit?
No. It shows the loan balance only. What's left depends on your home's value when it's sold, which this calculator doesn't predict.