Help on equity release - is this a good price?

Ancient_Mike

Hi

I am also looking into Equity Release and finding it confusing with regard to the actual costs. I get the handling fee's etc but in an illustration on the main site Martin quoted the following.

Borrow £20.000 aged £65 at 6.5% on a £120,000 home and live 25 years and when you die £100.000 will need to be paid. For the life of me I don't understand the calculation so any help would be gratefully received.

TrickyDicky101

Ancient_Mike wrote: »

Hi

I am also looking into Equity Release and finding it confusing with regard to the actual costs. I get the handling fee's etc but in an illustration on the main site Martin quoted the following.

Borrow £20.000 aged £65 at 6.5% on a £120,000 home and live 25 years and when you die £100.000 will need to be paid. For the life of me I don't understand the calculation so any help would be gratefully received.

At 6.5% per annum the monthly rate is 6.5% divided by 12. This is for a period of 25 years which is equivalent to 300 months.

So the calculation is:

20,000 x (1+6.5%/12) ^ 300

=£101,124

Where ^ means 'raised to the power of'.

In this scenario, the borrower makes no interest repayments - the interest gets 'rolled up' into the loan outstanding and thus interest is also subsequently charged on this 'rolled up' interest. This is why the debt grows so significantly.

Ancient_Mike

Thanks for the calculation very helpful however with Maths not being my best subject. How do you calculate this on a simple calculator?