If you are considering taking out a lifetime mortgage, the most popular form of equity release, it’s essential to understand how interest on the loan works.

Interest is charged on a ‘compound’ or ‘roll-up’ basis, meaning it’s applied both to the money you borrow and to any interest that has already accrued. This can build up considerably over the term of your plan, so it’s important that you know what to expect.

Our equity release compound interest calculator makes it easy to see how compound interest could build up on a lifetime mortgage. Because it’s interactive, you can try out different scenarios by adjusting the details and instantly see how much interest might grow over time.

A lifetime mortgage is a type of equity release available to homeowners aged 55 and over. It allows you to unlock some of your property wealth as tax-free cash.

You’ll still own 100% of your property and have the right to live there as long as you wish. But unlike traditional mortgages, there are no mandatory monthly repayments to make. Instead, the loan and interest are typically repaid via the sale of your home when you pass away or move into long-term care.

Any money left after the sale is returned to you or your beneficiaries. That’s why compound interest matters – because the more interest that builds up, the less money will be left once the loan and interest have been repaid.

When you’re looking at the total amount owed at the end of your plan, it’s worth remembering that your property may go up in value over time. If it does, that would narrow the gap between proceeds from the sale and what needs to be paid to the lifetime mortgage company. Although there is no guarantee that property prices will rise between now and when your plan ends, this is something to bear in mind when doing your calculations.