If you’re considering an equity release mortgage to unlock money from your home in later life, one of the most important decisions you’ll make is whether or not to service the interest.
Many people take out a lifetime mortgage and allow the interest to roll up over time. But if you’re able and willing to make monthly interest payments, you could dramatically reduce the long-term cost of borrowing – and leave more inheritance behind.
In this article, we explain how interest servicing works, and show you a real-world comparison on a £200,000 property releasing £50,000 at age 65.
A lifetime mortgage is the most common form of equity release in the UK. It allows homeowners aged 55 or over to borrow money against their home without making any monthly repayments unless they choose to.
Interest is charged on the loan and rolls up over time, meaning the total amount owed increases each year. The loan (and any rolled-up interest) is repaid when the homeowner dies or moves into long-term care.
When you service the interest, you agree to make regular monthly payments to cover the interest being charged. This prevents the interest from compounding and growing over time.
In other words:
– Serviced interest = only the original loan is repaid later
– Rolled-up interest = loan + interest + interest on interest
– Interest compounds yearly at 6%
– After 20 years, the debt grows to:
£50,000 → £160,356
That’s over £110,000 in interest alone.
– Monthly payments: £250 per month
– Over 20 years: £250 × 12 months × 20 years = £60,000 paid
– At the end of the term, the outstanding loan is still just £50,000
Total paid: £60,000
Debt at end: £50,000
Inheritance preserved: More of the home’s value remains intact
| Rolled-Up Interest | Serviced Interest | |
|---|---|---|
| Initial Loan | £50,000 | £50,000 |
| Monthly Payments | £0 | £250 |
| Interest After 20 Years | £110,356 | £0 |
| Total Owed | £160,356 | £50,000 |
| Equity Remaining* | £39,644 | £150,000 |
*Assumes house value stays the same at £200,000 (for illustration purposes)
By keeping the loan balance lower, you leave more of your property’s value behind for your family or chosen beneficiaries.
Making monthly payments saves you thousands in interest charges over time – in the example above, more than £110,000.
Many modern plans allow you to stop making payments if your circumstances change – the plan then converts to a roll-up.
You can often choose how much to repay each month (full interest, part interest, or ad-hoc voluntary payments).
Servicing the interest might be ideal if:
It may not be suitable if:
Servicing the interest on an equity release mortgage isn’t for everyone, but it can be a powerful way to reduce the cost of borrowing and preserve more of your estate.
Even making partial repayments can make a big difference over time. With modern flexible plans now offering interest payment options, it’s worth exploring what’s available before choosing to let the interest roll up.
Use our free equity release calculator to see how much you could unlock, and speak to a qualified equity release adviser to explore whether servicing the interest could work for your situation.