If you’re not up to date with the latest equity release loan interest rates, you could end up being locked into a plan with unnecessarily high rates!
The question is, why are low equity release mortgage rates so important?
As experts in the sector, we’ve reviewed more than 220 lifetime mortgage schemes by Dec 2021 and will help you discover:
- Do you pay interest on the tax free cash you unlock with equity release mortgages?
- What is the average interest rate on equity release plans?
- The best equity release rates so you can make sure not you’re paying more than necessary.
- What is the interest rate on equity release loans & why low rates are so important?
- What factors impact the interest when releasing equity through equity release schemes?
- Who offers the best equity release plan in the UK?
- How much does equity release cost compared to your existing mortgage?
The great news is that rates when releasing equity have hit an unprecedented all-time low in Dec 2021. But if you’re not careful, you could be sold a plan at higher rates, meaning that a greater portion of your home will go to your lender when you die.
Let’s find out!
What’s Equity Release & How Does It Work?
Equity release is a type of later-life mortgage that allows a homeowner, if you’re over the age of 55, to release tax-free cash tied into your home. The loan, plus interest charges, is then repaid from the sale of your home when you pass away or move into long-term care.
Need Help? Get the BEST Equity Release Financial Advice.
What Are the Types of Equity Release?
There are 2 types of equity release plans you can choose from. A lifetime mortgage is the most common form of releasing equity. With a lifetime mortage, you borrow a portion of the property value at a fixed or capped interest rate. A home reversion scheme is a tax-free lump sum is paid to you by a third party for a portion of your property at a price below market value. The money is shared according to the percentage ownership and the lenders percentage ownership when it’s sold.
What’s the Interest Rate on Equity Release?
In Dec 2021 the current equity release scheme rates are as low as 2.3%! This is a significant reduction compared to the equity release cost 5 years ago, when rates sat above the 6% mark.
Why Are Low Interest Rates on Equity Release & Lifetime Mortgages So Important?
With a lifetime mortgage (the most popular type), low interest rates mean there will be less compound interest, thus increasing the value of your estate once you have passed away or moved into permanent care.
Use our release equity calculator to see how much you can cash you can access when release equity from your home!
What are the Best Equity Release Rates?
The best interest rates on an equity release plan are 2.3%. View the table below to see the average interest rates from different equity release and lifetime mortgage lenders.
| Lender | Monthly Equivalent Rate (MER) | Annual Equivalent Rate (AER) |
| Pure Retirement | 2.76% | 2.80% |
| More 2 Life | 2.76% | 2.80% |
| Aviva | 2.82% | 2.90% |
| Newbury Building Society | 2.95% | 3.70% |
| Legal & General | 2.97% | 3.10% |
| Hodge | 3.00% | 3.90% |
| Scottish Widows | 3.03% | 3.10% |
| Bath Building Society | 3.05% | 3.20% |
| Just | 3.34% | 3.30% |
| Canada Life | 3.44% | 3.57% |
Learn More: Find the Top Equity Release Scheme & Latest Deals
What Affects the Interest Rate Charged?
The biggest impacts on equity release interest rates are the amount you choose to borrow, as well as the product features you require. The loan’s interest will differ from one individual to another. As a result, you must speak to a financial advice expert who will help you get the best equity release or lifetime mortgage interest rate available in Dec 2021.
How to Get the Lowest Equity Release Interest Rates?
To get the lowest interest rate on equity release make sure you understand these 5 factors.
- Requested Loan to Value – How much money you choose to borrow based on your property value has a massive impact on the interest rate percentage of your property. A free equity release calculator will help you determine the maximum you can achieve. Note that releasing equity release will impact your eligibility for means tested benefits.
- Product Features – It’s essential to check out the different product underwriting and features of the various home reversion and lifetime mortgage plans. Plans with extra features, such as a reserve facility, no early repayment charge, or inheritance protection on a lifetime mortgage, will come at a higher cost and an increased interest rate.
- Lending criteria – might also impact the market available to you, whether it’s a lifetime mortgage or home reversion scheme.
- Your Age – While your age doesn’t directly affect the best interest rate available for you, it is essential to note that it does impact the maximum amount you are permitted to borrow with a lifetime mortgage or home reversion scheme.
- Your Marital Status – Equity release lenders will consider the age of the youngest applicant when working out how much money you can borrow and the rates available to you. Be sure to mention your marital status to your independent financial adviser.
- Your Credit History – This can impact the lifetime mortgage and home reversion plans available to you and subsequent rates. On the downside, should you have a bad credit rating, some of the plans with the best rates in the market might not be available for you.
What Interest Rate Am I Likely to Achieve?
You should be able to get interest on a lifetime mortgage or equity release product at around 3%, but what you’ll end up paying will depend on these product features you choose.
- Downsizing protection – this feature allows you to move to a smaller home at any time, without incurring fixed early repayment charges on your existing mortgage.
- Interest repayments – if you have the means to do so, you should consider opting for an interest-only or voluntary repayment lifetime mortgage where you pay monthly interest repayments. The monthly payments will drastically reduce what is owed at the end of your loan.
- Loan repayments – in addition, with a voluntary repayment plan, you do have the option of making partial loan monthly repayments on your lifetime mortgage.
- Drawdown lifetime mortgage – with this option, instead of recieving a lump sum, you’ll only pay interest on the tax free cash you’ve actually unlocked. Hence known as drawdown lifetime mortgages. The rest is kept in a reserve for you, that you can use when you wish by contacting the registered office.
For example, if you think you may need £40,000 from your home to cover 20 years, only take what you need now and wait to take more until needed. A drawdown lifetime mortgage is set up to make this easier, and provide you with lower lifetime mortgage rates.
AER vs MER – What’s the Difference?
The difference between AER & MER is how the interest fee is calculated.
What is AER? What is MER?
- 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.
Fixed vs Variable Interest Rates
The majority of lifetime mortgage interest rates by Equity Release Council and UK’s financial services register (FCA) members are fixed for life at the outset of the plan. Simply put, it means that you will know exactly how much interest you will pay for the plan’s lifetime. While variable rates for lifetime mortgages, on the other hand, are very similar to residential mortgages and are typically linked to the Consumer Price Index (CPI).
NOTE: A two-year fixed rate is currently available with a One Family lifetime mortgage, following which the rate changes as per the Consumer Price Index (CPI).
Learn More: Understanding Equity Release: Variable vs Fixed Rates
Got Questions? Check These Out First
How Have Interest Rates Have Changed Over Time?
How’s Interest Computed on Equity Release?
Does Bad Credit Affect Your Interest Rates?
Can You Get Equity Release and Pay the Interest?
What If I Can’t Pay Off My Interest-Only Mortgage?
In Conclusion
Dec 2021 is probably the BEST time to choose a plan, whether it’s a lifetime mortgage or a home reversion scheme. With rates being at an all-time low, you’ll benefit from an increase in property value and have the opportunity to release equity, meaning that you can retire comfortably.
Just make sure that you select an equity release provider who’s a member of the Equity Release Council. All plans by the equity release council come with a ‘no negative equity guarantee‘. In addition, keep in mind that you’ll need to use some of the money you release to pay an outstanding mortgage.
When considering equity release products, it’s tempting to focus on the immediate boost you will get from the money you unlock, but you need to look at how it will affect your future choices and financial situation in later life, and carefully consider the impact of the early repayment charge. An equity release adviser will help you through the entire process, whether with a lifetime mortgage or a home reversion plan.
You can get a better idea of a realistic quote with our free equity release calculator.
