In plain English: Interest on a lifetime mortgage is usually added to the loan rather than paid monthly, and each year’s interest is calculated on the new, larger balance. That is compound interest — the balance grows faster than most people expect, and the rate makes a big difference. Here is exactly how it works, with real numbers.
Last reviewed: June 2026
Do you have to make monthly payments on a lifetime mortgage?
Most lifetime mortgages don’t require monthly repayments, though product terms vary. Instead, the interest “rolls up”: it is added to the loan, and future interest is charged on the bigger total. This is the feature that makes the product workable for people who don’t want a monthly commitment in retirement — and it is also the feature that has caused the most surprise and upset when it wasn’t explained properly. So let us explain it properly.
How fast does compound interest grow on a lifetime mortgage?
Take a £50,000 loan, with interest calculated daily and added to the loan each month, which compounds faster than annual interest. For explanation only — your own illustration will show your actual rate and convention:
| Annual rate | Balance after 10 years | Balance after 20 years |
|---|---|---|
| 6% | about £90,900 | about £165,500 |
| 7% | about £100,500 | about £201,800 |
| 8% | about £111,000 | about £246,300 |
Two things are worth noticing. The balance doesn’t simply double on a schedule — it accelerates, and the rate drives how fast. And the difference between rates that look close on paper is large over twenty years. This is why comparing across the whole market matters, and why we show you these figures before anything else.
Can you reduce the cost of compound interest on equity release?
Modern plans give you ways to control the cost. Many let you make optional repayments — monthly or ad hoc — which slow or even stop the roll-up. Drawdown plans let you take money in stages, so interest is only charged on what you’ve actually drawn, not the full facility. Used together, these two features change the shape of the curve entirely — try the calculator below to see the figures on your own home.
See what you could borrow and what it would cost over time
Our free calculator shows the figures on your own circumstances — no commitment, no obligation.
Why these numbers matter before you decide
Because the people who regret equity release are almost always the people who didn’t see these numbers at the start. Our advice process puts the compounding figures, your repayment options and a personalised illustration in front of you before any decision — and if the numbers don’t work for your situation, we’ll say so.
Frequently asked questions
Does the interest rate change over time?
Most lifetime mortgages have a rate fixed for life, so the rate you start with is the rate that applies throughout. Your illustration states this explicitly — including whether it is quoted as AER, APR or MER. These abbreviations mean different things: AER is the Annual Equivalent Rate, MER is the Monthly Equivalent Rate, and APR is the Annual Percentage Rate. AER and MER simply express the interest rate over different periods, whereas APR is different again because it also takes into account fees and other charges, giving you the true overall cost of borrowing. Some lenders quote AER or MER, but every lender is required to quote APR, so it is the figure to use when comparing plans like for like.
Can the loan grow bigger than my home’s value?
Plans that meet Equity Release Council product standards come with a no-negative-equity guarantee — you can never owe more than your home is worth — subject to the plan’s terms and conditions.
Can I pay off a lifetime mortgage early?
You usually can, though early repayment charges may apply depending on the plan and timing. We explain any charges before you commit, not after.
Ready to see your own figures?
Important things to know
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly. To understand the features and risks, ask for a personalised illustration.
Most lifetime mortgages include a No Negative Equity Guarantee, meaning the estate will never owe more than the value of the property when it is sold, provided the plan is taken out with a lender that is a member of the Equity Release Council.
Equity release is not right for everyone. Alternatives include downsizing, retirement interest-only mortgages, unsecured borrowing, or using other savings. Our advisers will discuss all of these with you before any recommendation.
Retirement Solutions (UK) Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 483817). Registered in England and Wales, company number 06437737. Registered office: Metropolitan House, Station Road, Cheadle Hulme, Cheshire, SK8 7AZ. This article is for information only and does not constitute financial, legal or tax advice.
