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Interest-payment lifetime mortgage

  • Save thousands in interest by making monthly payments
  • Help reduce your total cost of borrowing
  • Find out more about the benefits, drawbacks and costs of equity release

What is an interest-payment lifetime mortgage?

An interest-payment lifetime mortgage is a type of equity release which is a loan secured against your home. It could help you unlock some of your property's value.

It's different to a lifetime mortgage with voluntary payments as when you release cash through an interest-payment lifetime mortgage, you agree to make monthly interest payments of between £25–100% of the interest added to your loan each month to help reduce your total cost of borrowing.

If you’re able to make full interest payments for the life of your plan, it’ll leave you with only the amount borrowed to pay at the end. An interest-payment lifetime mortgage isn’t subject to affordability tests, however, agreed payments must be sustainable as there may be a penalty for stopping payments early.

The money you unlock through an interest-payment lifetime mortgage is tax-free. You can use it in several ways, such as:

How does a Key interest-payment lifetime mortgage work?

With a Key interest-payment lifetime mortgage, you could receive an interest rate discount by making monthly interest payments. The longer you commit to making payments, and the more interest you pay, the bigger the discount.

The discount that you get will depend on the amount you want to borrow compared to the value of your house, how much interest you can pay each month and whether you want to make payments for 5,10 or 15 years.

The combination of making payments and the reduction in interest rate could help you save thousands – even with a small discount on your interest rate. Your adviser can give you an illustration of what discount you could get and how much it could save you.

ⓘ Illustrative example

Marge is a 71-year-old divorced retiree looking to release £100,000 from her £600,000 property to gift money to her grandchildren and help making some home and garden improvements.

By committing to paying 100% of the monthly interest for 10 years, Marge is rewarded with a 0.30% interest rate discount. Through this interest rate discount, and by paying monthly interest payments for 10 years, Marge can save more than £116,000 over 20 years compared to making no repayments through the same standard lifetime mortgage.

  Lifetime mortgage    Key interest-payment lifetime mortgage
Initial loan amount £100,000 £100,000
Interest rate 6.5% MER* 6.2% MER*
Monthly payments £0 £532 (for 10 years) (100% of the monthly interest)
Total cost of borrowing after 20 years       £365,645 £249,436 (inc.payments)
Net saving £0 £116,209

*Monthly Equivalent Rate. Interest rates, monthly payments and savings amounts are for illustrative purposes only. Interest rate received and plan features are subject to eligibility. Ask your adviser for a personalised quote.

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What are the benefits and drawbacks of equity release?

Like any financial product, equity release has potential benefits and drawbacks to weigh up.

It's important you have all the facts available to make the right decision for you, find out more about the benefits and drawbacks of equity release.

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What are the benefits and drawbacks of equity release?

Like any financial product, equity release has potential benefits and drawbacks to weigh up.


  • Tax-free cash: You can unlock cash from your home, tax-free, to help meer your needs in later life

  • Stay in your home: You'll retain full ownership of your home and can stay in it for as long as you wish

  • Reduced or no monthly repayments: You can make reduced or no monthly repayments with a lifetime mortgage. This applies to a payment-term lifetime mortgage after the oldest applicant turns 66, and overpayments can be made at any time, subject to criteria

  • No negative equity guarantee: You'll never owe more than your home's worth or pass on any equity release related debt to your family, provided terms and conditions are met

  • A payment-term lifetime mortgage: Could allow you to unlock more of your home's value at a lower interest rate than a comparable lifetime mortgage


  • The interest can build up quickly: Lifetime mortgages and payment-term lifetime mortgages are loans secured against your home and are subject to compound interest, meaning the amount you owe can grow quickly

  • Reduced value of estate: Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits

  • Long term financial product: These are long-term financial products and are not designed to be repaid early. If you do, early repayment charges may apply

  • Reduced or no property equity: Equity release may leave you with limited or no property equity remaining and will reduce your financial options in the future

  • Mandatory payments: There's a period of mandatory payments with a payment-term lifetime mortgage, and your home may be repossessed if you don't keep up with these payments

We only recommend equity release if it's right for you

You have to receive qualified advice before taking out equity release, so you can be sure it's the right decision for you

All our equity release advice relates to Key lifetime mortgages and payment-term lifetime mortgages only - loans secured against your home.

Our fixed advice fee of £1,299 is only payable on completion. Equity release will reduce your estate's value and may affect your entitlement to means-tested benefits.

A lifetime mortgage or payment-term lifetime mortgage may result in limited or no property equity remaining and will reduce your financial options in the future.

How does compound interest work?

With a lifetime mortgage, the interest accrues, then rolls up and adds to the loan. This is also known as compound interest. The interest rate you get will be specific to your circumstances and fixed for the life of the loan.

  • The interest rate when your plan starts determines how quick interest grows. This will impact the total cost of borrowing over the term of the loan.
  • During the first period the interest is charged and added to the original loan amount. Following this, the interest is then calculated and charged on what you owe at the time. This is the original loan plus interest, not just the amount you initially borrowed.
  • This means a larger amount of interest adds to your lifetime mortgage each period. This cycle continues until the plan ends.

The interest is added either monthly or annually depending on your plan. There are ways you could reduce the total cost of borrowing of your lifetime mortgage.

ⓘ Illustrative example

Illustrative purposes only. This example is in relation to a standard lifetime mortgage. It uses the average release amount of £82,475 and monthly equivalent rate (MER) of 6.3% – Key Market Monitor H1, 2023. Average UK house price of £288,000 – ONS, August 2023.

Year Balance at start of year Interest (6.3% MER)¹ Balance at end of year² Remaining property equity³
1 £82,475 £5,349 £87,824 £200,176
2 £87,824 £5,695 £93,519 £194,481
3 £93,519 £6,065 £99,584 £188,416
15 £198,778 £12,891 £211,669 £76,331
20 £272,153 £17,649 £289,802* £0

* The end of year balance is higher than the property's value. You'll never owe more than your home's worth, though, with a Key lifetime mortgage. This is the no negative equity guarantee.

¹ The rate at which interest adds to the loan – in this case, monthly (MER). All Key lifetime mortgages have a fixed interest rate for life. This column shows how much interest has added to the loan that year.
² How much is owed at the end of the year, including compound interest.
³ The difference between your property value and your outstanding lifetime mortgage balance.

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Am I eligible for a Key interest-payment lifetime mortgage?

To qualify for a Key interest-payment lifetime mortgage, you must:

  • Be aged 55 or over

  • Own your own home with a property value of at least £99,000

  • Be able to commit to making monthly interest payments

ⓘ Did you know...

If you're not eligible now, try our later life mortgage finder. We could still help you take control of your later life finances.

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Why choose Key?

We're regulated experts

Key is regulated and a proud member of the Equity Release Council.

Trusted award-winners

We've won 80+ awards and are rated 'Excellent' on Trustpilot with 17,000+ reviews. This makes us the UK's most trusted equity-release specialist.

Highly experienced

We have over 25 years' experience. We've helped more than a million customers with tailored equity release advice. Once we've taken the time to understand your needs, we’ll have a sound idea of which plan is right for you.

How to release equity from your home

To help you understand the process, we’ve put together these simple steps. They highlight what your journey to equity release could be like:

Use our free calculator

Check your eligibility and how much cash you could release with our equity release calculator.

Speak to an adviser

Book an appointment with a qualified equity release adviser at a time that's good for you.

Assess your options

Your adviser will recommend the most suitable product. Learn more about your later life mortgage options.

Your other options

Other options Key doesn't offer

  • Home reversion

  • Downsizing

  • Unsecured lending

  • Using existing assets

  • Support from friends or family

ⓘ If another product is more suitable, we'll refer you to a different adviser within Key Group who can help. If you go ahead, you'll only be charged the same £1,299 advice fee you'd pay with us, even if their fee is usually higher.

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Page last updated: Monday 03 June 2024