How much does a lifetime mortgage cost?

What is compound interest and how does it work?

Unless you choose to make them, there are no repayments on a lifetime mortgage until the plan comes to an end. As a result, you pay interest not only on the loan but also on the interest that’s already been added to the loan – this is called compound interest.

Whether interest is added to your lifetime mortgage monthly or annually depends on your plan. But during that first period, the interest is charged and added to the original loan amount (the sum of money you unlock from your home’s value).

Interest is then calculated and charged on what you owe (the original loan amount plus interest), not the amount you initially borrowed. This new, larger amount of interest is then added to your loan, and this cycle continues until the plan comes to an end.

This means a larger amount of interest is added to your lifetime mortgage each period.

The interest rate at the beginning of your plan determines how quickly the interest grows which will impact the total cost of borrowing over the term of the loan.

Here's an example of how compound interest accrues over 15 years:

This example is for illustrative purposes only and uses the average release amount and Monthly Equivalent Rate achieved by customers who were referred by us and took a policy with Standard Life Home Finance in Q2 2024

*Interest on Standard Life Home Finance lifetime mortgages is calculated on a daily basis. For illustrative purposes a Monthly Equivalent Rate (MER) is used.

What other costs are involved with taking a lifetime mortgage?

There are additional set-up costs involved with setting up a lifetime mortgage, which relate to the various processes and services involved. These may include advice fees, solicitor fees, surveyors fees and potentially an application fee for setting up the mortgage – all of which will vary depending on the supplier you use. Your adviser will be able to explain all of these fees during an appointment.

How can I reduce the cost of my lifetime mortgage?

There are ways you could reduce your total cost of the borrowing.

Making repayments
You have the option to make ad-hoc or regular repayments to help reduce your total cost of borrowing. Even if you can only make small repayments, it will help reduce the amount of interest you pay over the lifetime of your loan.

So, for example, if you were to borrow £52,000, with a fixed 5.91% MER interest rate, and make no repayments at all, after 15 years, your total cost of borrowing would be £125,910. However, by making a monthly £150 repayment, after 15 years, you’d owe £82,662 - with a total cost of borrowing, including repayments, of £109,662. This means, by repaying £150 a month, you, and your beneficiaries, could benefit from a £16,248 net interest saving.

‘Interest Reward’ product feature
With a Standard Life Home Finance ‘Sunrise’ lump sum lifetime mortgage, you may have the option of receiving an interest rate discount by agreeing to making monthly interest payments. The longer you commit to making payments, and the more interest you pay, the bigger the discount.

This feature could help save you thousands in interest over the life of your plan by making interest payments, helping you reduce your total cost of borrowing and giving you more control over your financial future. Book a call with a Key Advice Solutions adviser to learn more.

Remortgage to another equity release plan in the future
If interest rates reduce in the future, you may have the option to remortgage your current plan to secure a lower rate.

• If you can secure a lower interest rate in the future (not guaranteed) you can reduce your total cost of borrowing
• An early repayment charge (ERC) may be payable if you choose to remortgage
• All Standard Life Home Finance plans come with fixed ERCs, so they expire after a certain amount of time – your equity release adviser can explain this to you

Consider a drawdown plan
With a drawdown lifetime mortgage, you only take out the money when you need it. This can help reduce your total cost of borrowing, as interest is only charged on the money you release, rather than the full amount available.