Best 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?
The interest rates on equity release are fixed or occasionally capped, variable rates that currently start at between 4% and 7%.
In the Spring 2022 Market Report1, the Equity Release Council stated that the average interest rate for equity release was 3.95%.
Why Are Low Interest Rates on Equity Release So Important?
Low interest rates on equity release are important because they will 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.
The older you are, the more equity you can unlock from your property. You’ll need to be 55 or older to qualify for such loans.
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.
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.
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.
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.
The surveyor’s valuation will determine your property’s value, which will impact the interest rates you’re charged.
How’s Interest Computed on Equity Release?
Interest is computed on equity release by the amount added monthly or annually on your loan amount and the interest that’s 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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What Is the Best Interest Rate on Equity Release?
The best interest rate on equity release is currently between 4% and 7%.
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.
|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%|
|Aviva||Lifestyle Flexible Option Fixed ERC||4.65%||4.50%||5.00%|
|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%|
|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 (4% Cashback) (AP)||4.75%||4.85%||4.85%|
Last Updated: 20 July 2022
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:
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 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.
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.
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.
Will Equity Release Interest Rates Fall?
Yes, equity release interest rates will fall. Experts predict that this will happen again in 2024.
Are Equity Release Interest Rates Fixed?
Yes, equity release interest rates are usually fixed. In some cases, you may find capped, variable interest rates.
Is Equity Release Compound Interest?
Yes, equity release is with compound interest. Unless you pay off your monthly interest, you’ll end up paying interest on interest.
Does Bad Credit Affect Your Interest Rates?
No bad credit doesn’t usually affect your interest rates on equity release. However, it can impact your interest achieved on other financial products.
Can You Get an Equity Release and Pay the Interest?
Yes, you can get equity release and pay the interest, stopping and starting as and when you desire.
What Interest Rate Am I Likely to Achieve?
The interest rate you are likely to achieve is between 3.53 and 6.8%. This will depend on your age, property value, and the condition of your home.
Can You Pay the Interest on Equity Release?
Yes, you can pay interest on equity release. This would be voluntary.
Do You Have to Pay Interest on Equity Release?
No, you do not have to pay interest on equity release in your lifetime. However, the interest will then be added to your loan and paid from the sale of your property.
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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