Equity Release Interest Rates in 2022
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Stop and read this article on equity release interest rates before blindly walking into an equity release plan.
Or, if you’ve already released equity, we may have some life-changing news.
While equity release is a fantastic product, interest rates can be financially draining.
But, we’ve got the secrets on how to obtain the best equity release rates, and we’re here to share.
What You’ll Learn in This Article:
SovereignBoss is invested in you, and our role is to find the best rates on the market, to help you have the cheapest possible equity release journey.
We did a detailed analysis of all regulated equity release plans to find the key.
Here’s what we’ve discovered.
Let’s find out now!
What’s the Interest Rate on Equity Release?
Fixed interest rates start at 4.43%.
According to the Equity Release Council1, the average interest rate for equity release sat at 4.26% in January 2022.
Rates are on the rise.
*While we regularly review our rates, these may have shifted since our last update.
Why Are Low Interest Rates on Equity Release So Important?
Low interest rates on equity release are important because they’ll vastly reduce the overall cost of your loan, particularly if you allow the interest to compound.
The more home equity you use for interest, the lower the inheritance you’ll leave to your heirs.
What Factors Affect the Equity Release Interest Rate?
The factors that affect the equity release interest rate are age, product features, credit history, requested loan-to-value, marital status, and surveyor’s valuation2.
Here’s more information.
Age
The older you’re, the more equity you can unlock from your property. You’ll need to be 55 or older to qualify for such loans.
Product Features
The product features offered by your lender will impact equity release interest rates.
You might be given a free valuation or no completion fee, but your interest rates are exaggerated. Therefore, your best bet is to review a potential plan holistically.
Credit History
Your credit history could impact the loan you can access, but this is unlikely.
Credit checks are unlikely to be requested because equity release is a secured loan3.
Requested Loan-to-Value
The loan-to-value you request is certain to impact the amount of equity you can unlock.
The rule of thumb is that the more you unlock, the less interest you’ll pay.
Marital Status
If you’re married and want to unlock a joint plan, the youngest spouse’s age will be considered to determine your equity release interest rates.
Surveyor’s Valuation
The surveyor’s valuation will determine your property’s value, which will impact the interest rates you’re charged.
How’s Interest Calculated on Equity Release?
Interest is calculated on equity release by adding the monthly or annual interest to your loan amount and the interest already charged.
This is known as compound interest and is essentially interest on interest.
Equity Release Interest Example
An example of equity release interest rates is as follows:
If you want to unlock 25% of your property value, at age 55 you’ll pay an interest rate of 3.53%, but at 75, you’ll pay 4.07%.
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How Have Equity Release Interest Rates Changed Over Time?
Equity release interest rates have changed dramatically over time. In 2003 the interest rates were recorded as 5.4%, rising to a high of 6.8% in 2005, 2012 and 2013.
The current average interest rate for a borrower aged 65 is 4.12%, with the lowest rate recorded as 2.75%.
3 years ago those figures were 5% and 3.4% respectively.
What Are the Best Equity Release Interest Rates in the UK?
The best equity release interest rates in the UK currently start from 4.07%.
However, the best rates you can achieve will be determined by your age, the value of your property, and even the condition of your health.
| Provider | Scheme Name | MonthlyThe amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed | AERThe percentage of interest on a loan or financial product if compound interest accumulates over a year during which with no payments are made. | APRThe Annual Percentage Rate (APR) is the cost you pay each year to borrow money, including fees, expressed as a percentage. |
|---|---|---|---|---|
| Aviva | Lifestyle Flexible Option Fixed ERC | 4.65% | 4.50% | 5.00% |
| Legal & General | Flexible Black Lifetime Mortgage Tier 1 Defined ERCs DTV (Fee) | 4.66% | 4.76% | 4.90% |
| Legal & General | Flexible Black Lifetime Mortgage Tier 1 Defined ERCs DTV | 4.70% | 4.80% | 4.90% |
| Legal & General | Flexible Pink Lifetime Mortgage Tier 1 Defined ERCs DTV (Fee) | 4.73% | 4.83% | 5.00% |
| Pure Retirement | Sovereign Flex Lump Sum (Fee) (AP) | 4.28% | 4.36% | 4.36% |
| Pure Retirement | Sovereign Flex Lump Sum (Fee Free) (AP) | 4.35% | 4.44% | 4.44% |
| Pure Retirement | Classic Flexible Lump Sum 2 | 4.41% | 4.50% | 4.50% |
| Pure Retirement | Classic Flexible Lump Sum 1 | 4.46% | 4.55% | 4.55% |
| Pure Retirement | Sovereign Flex Lump Sum (4% Cashback) (AP) | 4.75% | 4.85% | 4.85% |
Last Updated: 20 July 2022
*While we regularly review our rates, these may have shifted since our last update.
Rates Table Based On:
- Gender: Single Male
- Age: 60
- Property Value: £300 000
- Release Amount: £30 000
How to Get the Lowest Equity Release Interest Rates
To get the lowest equity release interest rates, contact a whole-market financial advisor who can review the entire market for you, finding the lender that’ll provide the best offer.
How to Reduce the Rate of Interest Paid on Equity Release Schemes
You can reduce the rate of interest charged on equity release schemes by opting for a drawdown reserve, going for downsizing protection, choosing interest repayments, and making loan repayments.
Here’s more information:
Drawdown Reserve
A drawdown reserve helps you reduce equity release interest rates because your money stays in the reserve facility, and you only pay interest on the money you withdraw.
Downsizing Protection
Downsizing protection ensures that you won’t pay penalties if you move home and your new home doesn’t meet essential requirements.
Instead, your home is sold, and the loan and interest balance is covered from the sale.
As per the Equity Release Council’s ‘no negative equity guarantee,’ any additional equity will be written off.
Interest Repayments
You can repay the monthly interest on your equity release plan, stopping and starting whenever you wish.
The Equity Release Council implemented a new rule on 31 March 2022, stating that all new plans must come with the option of voluntary interest repayments.
Therefore, if you’re already a plan holder, you should chat to your financial advisor about potentially switching plans.
Loan Repayments
You can also make loan repayments on new equity release plans, as per the Council’s latest ruling.
While some lenders offered this in the past, you now have the guaranteed option of repaying 10% to 40% of your loan amount annually. The exact amount will be lender dependent.
Fixed vs. Variable Interest Ratest
The difference between fixed and variable interest rates is that fixed rates are set when you unlock equity and stay the same throughout; variable rates will fluctuate according to financial market standards.
While fixed rates are vastly more common with equity release, variable equity release interest rates will come with a cap.
AER vs. MER – What’s the Difference?
The difference between AER & MER is how the interest fee is calculated.
- MER: Monthly Equivalent Rate – This type of interest rate is added over a year but divided monthly. The MER generally works out to be lower than the AER.
- AER: Annual Equivalent Rate – AER, on the other hand, refers to interest rates that are added over one year.
Common Questions
Will Equity Release Interest Rates Fall?
Are Equity Release Interest Rates Fixed?
Is Equity Release Compound Interest?
Does Bad Credit Affect Your Interest Rates?
Can You Get an Equity Release and Pay the Interest?
What Interest Rate Am I Likely to Achieve?
Can You Pay the Interest on Equity Release?
Do You Have to Pay Interest on Equity Release?
In Conclusion
Equity release has never been more flexible now that you can pay back the monthly interest as and when you wish.
While rates have increased, they are still quite reasonable, and you can save a ton with small monthly payments.
Remember to consult a whole market financial adviser as they’ll have the tools to find you the best equity release interest rates available on the market to suit your needs.
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