With a lifetime mortgage - the most common form of equity release - interest is charged on a compound basis.

This means that at the end of the first month with your lifetime mortgage (or year, depending on your plan), the interest is charged on the original amount you borrow.

However, in the month or year following, and every period thereafter, the interest is added to the full balance of the loan, including any previous interest accrued. This cycle continues until the plan comes to an end

How can I reduce the cost of borrowing through equity release?

You do, of course, have options to help reduce the total cost of the loan over the lifetime of your plan if that’s important to you; for instance, if you wish to leave a larger estate to your loved ones. These include:


Make repayments

Even though there are typically no monthly repayments to make with a lifetime mortgage, all our plans come with the option to make ad-hoc or regular repayments to help reduce your total cost of borrowing, often without incurring an early repayment charge. 

Even if you’re only able to make small repayments, it’ll help reduce the amount of interest you pay over the lifetime of your loan.


Consider a drawdown plan

With a drawdown lifetime mortgage, you only take out the money you need 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.


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. By paying a lower interest rate, you can reduce your total cost of borrowing. However, a reduction to interest rates in the future isn’t guaranteed. 

It’s also important to remember that there may be an early repayment charge (ERC) payable if you choose to remortgage your equity release plan. However, most modern lifetime mortgages come with fixed ERCs.

At more2life, with some of our lifetime mortgages, you’re able to repay your loan in full without an early repayment charge after year eight. If this is important to you, your adviser will be able to help you understand which products are best suited to your needs.
 

Alongside the benefits of equity release, we also want you to be aware of what’s important to consider before making a decision.

1. A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly
2. Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits
3. Equity release may leave you with limited or no property equity remaining
4. Equity release will reduce your financial options in the future
5. A lifetime mortgage is a long-term financial product and is not designed to be fully repaid until the death or entry into long-term care of the last remaining borrower, otherwise early repayment charges may apply

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