The Queen allowed Prince Harry and Meghan Markle to keep Frogmore Cottage fearing the couple might otherwise leave Britain forever, according to reports.
The couple were expected to retain access to the home after their bombshell announcement they planned to 'step back' from royal life.
But the property was at the centre of controversy after £2.4 million of taxpayer cash was splashed on it for renovation work.
The couple faced public backlash over their continued claim to the cottage, which subsequently emerged as a key focus of the Queen's negotiation deal.
The final deal the monarch struck with Meghan and Harry this weekend saw them offer to reimburse the taxpayer for the millions in renovations costs for the home on the Windsor estate.
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They could also be forced to pay hundreds of thousands of pounds in rent if they wish to continue using they home as they start their new life, which will see them divide their time between the UK and Canada with baby Archie.
The Queen made it clear the outgoing Duke and Duchess of Sussex should keep Frogmore in their landmark 'abdication' deal because she worried they might not otherwise return to the UK, the Mail reports.
Sources told the newspaper that the Queen wanted Harry, Meghan and baby Archie to have a home in the UK to maintain the family's bond.
The source told the Mail: "It is very telling that the Queen makes clear [in her statement] that she has given them a home on her favourite estate and that they are going to keep it. She wants them to have a family home in the UK.
"But they were constantly being beaten up about the cost of the Frogmore renovations. So there was no hesitation in their mind of offering to pay the money back in order to be free of any public obligations."
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In a statement released by the Queen on Saturday, she said: "The Duke and Duchess of Sussex have shared their wish to repay Sovereign Grant expenditure for the refurbishment of Frogmore Cottage, which will remain their UK family home."
Palace officials also told the Mirror that the pair will cover the rent and bills on the property.
In her statement, the Queen said Prince Harry , Meghan Markle and their son Archie will remain 'much loved' members of her family as they quit the UK.
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The monarch backed their plan to live a more independent life and recognised the 'challenges' the royal couple had faced.
In a touching tribute, the Queen also shared her pride at how quickly Meghan had become a part of the family.
She thanked the couple for their 'dedicated work' and wished them a 'happy and peaceful new life'.
The full statement said: "Following many months of conversations and more recent discussions, I am pleased that together we have found a constructive and supportive way forward for my grandson and his family.
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"Harry, Meghan and Archie will always be much loved members of my family. I recognised the challenges they have experienced as a result of intense scrutiny over the last two years and support their wish for a more independent life.
"I want to thank them for all their dedicated work across this country, the Commonwealth and beyond, and am particularly proud of how Meghan has so quickly become one of the family.
"It is my whole family's hope that today's agreement allows them to start building a happy and peaceful new life.
"The Duke and Duchess of Sussex are grateful to Her Majesty and the Royal Family for their ongoing support as they embark on the next chapter of their lives.
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"As agreed in this new arrangement, they understand that they are required to step back from royal duties, including official military appointments. They will no longer receive public funds for royal duties.
"With The Queen's blessing, the Sussexes will continue to maintain their private patronages and associations. While they can no longer formally represent The Queen, the Sussexes have made clear that everything they do will continue to uphold the values of Her Majesty.
"The Sussexes will not use their HRH titles as they are no longer working members of the Royal Family.
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"The Duke and Duchess of Sussex have shared their wish to repay Sovereign Grant expenditure for the refurbishment of Frogmore Cottage , which will remain their UK family home.
"Buckingham Palace does not comment on the details of security arrangements. There are well established independent processes to determine the need for publicly-funded security.
"This new model will take effect in the spring of 2020."
Meghan and Harry announced their decision to step back from the royal family earlier this month, in a move that blindsided Buckingham Palace.
They plan to work towards becoming 'financially independent.'
It is widely speculated they will be looking to strike millions in commercial deals once they begin their new life outside the royal family.
The pair had trademarked the 'Sussex Royal' name for use in merchandise in the months ahead of their shock announcement.
However the Mirror has reported that they face a fight to stake a claim to the branding as they lose their official titles and move away from the royal family.
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