A lifetime mortgage equity release product charges interest at rates of between just under 3% up to 7%. While this is higher than a conventional mortgage it is the effect of compound interest over many years that really increases the cost of equity release.
For example, if you borrowed £80,000 at 4% you would accrue £3,200 in interest in year one. At the end of year one this interest is added to you loan, now totalling £83,200 and you would accrue interest on this amount. At the end of year two you would have an additional £3,328 in interest to add to your loan. After seven years you would accrue £21,381 in interest and owe £101,381.
There is good news though, you can cut the costs of equity release by choosing a product that allows you to pay back some or all of your interest and the no negative equity guarantee available on all equity release products means your beneficiaries will not have to make up any shortfall should your property be worth less than your total debt.