Are Falling Equity Release Rates a Cause for Concern?
Homeowners that want to release money from their house can now do that at the most competitive equity release interest rates ever! Here’s how equity release works so well with the lowest interest rates yet.
According to the Equity Release Council, equity release rates hit an all-time low in 2020! There are so many equity products on the market, and more than 50% of them are now offering rates lower than 4%! Some even as low as 2.6%. Even though 2021 has seen a slight increase since then, it remains average low compared to previous years, where it was around 6%1.
Why Low Equity Release Interest Rates are Actually Good for You
When it comes to lifetime mortgages, which is the most common type nowadays, you don’t have to make any repayments if you don’t want to. The only repayment you need to make is at the end of the loan period.
If, however, you’d like to make repayments before the end of the loan period and decrease the loan amount, the interest that would inevitably build up during the loan won’t be so high as it would without making extra repayments.
But, if that’s not you…
Making the repayment only at the end of the loan term is also better now that the interest rates are low. The interest build-up will be less than in previous years, where interest rates used to be more than 5%.
Equity Release Is a Good Way to Borrow Some Extra Cash
Compared to other competitors, equity release is becoming a great one! Traditional borrowing isn’t so high on the charts anymore because equity release has taken the lead as the UK’s mainstream financial solution.
More than 400 equity release products were sold in January 2020 alone, according to the ERC2. So, there are many options to choose from when you’re 55 years or older, and you need some extra cash by releasing equity from your property or home.
Let me mention something else…
When it comes to interest compounding, you’ll need to look into a few other features before you decide on an equity release.
4 Great Features of Equity Release
1. Downsizing protection
Meaning, your loan can be repaid without early repayment charges. This usually happens when you want to sell your current property and move to another in the future, for example.
2. Interest repayment
Look into your provider and plan: some allow you to make once-off interest payments at the end of your loan period, some allow early repayments or part-interest repayments.
3. Loan repayments
The ERC has around 50% products that allow you to make partial repayments on your loan without charging early repayment charges. This is great for decreasing the total end cost.
4. Drawdown reserve
Drawdown lifetime mortgages allow you to take out an initial amount of cash. You will also be allowed to make an account reserve of more money to draw down in the future. Better yet…
You won’t be charged interest on that reserve until you take that money out. This is great for managing compounding or accruing interest.
So, what’s next?
Well, to understand what a lifetime mortgage is, it’s advised that you chat with your trusted financial adviser about it to get the full scope. Make sure it’s a fully-qualified equity release adviser who knows the current interest rates, house prices and borrowing costs.
3 Important Things to Consider BEFORE Getting an Equity Release
Get Professional Advice
Are you thinking about releasing equity from your home? It’s a big deal! So it’ll be good to ask a professional for some equity release advice before jumping into it.
Best of all…
You can go online to find advice if you don’t already have a financial adviser. Simply book an appointment online; there are hundreds of advisers nationwide. The adviser should get the best plan for you and outline how much you’ll get, how much you’ll spend, and what you’ll end up with.
Let me tell you something…
Without an adviser, you might not have been made aware of the effect equity release might have on your means-tested benefits entitlement.
Don’t Release More Than You Need
The rates you’ll pay on the equity you release will increase the closer you get to your maximum borrowing limit.
Currently, the highest rates for the maximum is 6%. But, if you take out 75% of your maximum, your rates will most likely be 3% or less. And then, if you take out 60%, you’ll most likely qualify for 2.24%!
But what about traditional mortgage rates?
Well, even though traditional mortgage rates are between 1-2%, equity release rates are fixed for life, making it a better option in the long run.
Releasing Money Only When You Need It
As you probably know, drawdown plans and income plans let you draw down against a pre-agreed facility. Drawdowns allow you to choose income plans to ask that you set your income amount from the get-go.
Even though they’re more rigid in a way, there’s more certainty attached to income plans because you set the rate at the beginning of the agreement. On the other hand, drawdown rates are only applied when you release money. Plus, each drawdown comes with another application.
Let’s Look at Some Stats
Thanks to the beautiful ERC (Equity Release Council), you can now have an informative report to help you decide whether you should consider an equity release or not. According to their Autumn Market Report, 50% of equity release products offer rates lower than 4%! 20% of equity release products offer rates lower than 3%, some even as low as 2.6%!
Best of all…
Equity release has the lowest interest rates of any personal forms of borrowing money, including mortgages, personal loans, credit cards and even overdrafts.
July of 2019 saw a 29% increase in equity release product sales, making it a rise of 88% during the first 6 months of 2019. Even though those numbers decreased slightly by mid-2020, the rates remained low after the 5% sales decline due to the pandemic.
Speaking of COVID-19…
Because of the pandemic that hit the world in 2019/2020, equity release customer activity decreased by 14% at the beginning of 2020. But, the ERC also noted that recovery has been taking place since June 2020.
The Market Report1 clearly shows how providers have supported customers during the COVID-19 pandemic, with rates at an all-time low and providers ensuring flexible products.
Got Questions? Check These First
Are Equity Release Rates Falling?
Yes, compared to earlier years, it’s at a historic low of under 3%!
What's The Lowest Interest Rate For Equity Release?
2.24%, according to the ERC report. The Market Report clearly shows how providers have supported customers during the COVID-19 pandemic, with rates at an all-time low and providers ensuring flexible products.
What's A Typical Interest Rate For Equity Release?
The typical rate used to be around 5%, although most rates are now under 3%, thanks to COVID-19 and competitors’ rates.
If you think about it, historically low equity release interest rates and an increase in interest compounding, equity release remains a great way to go ahead financially.
So if you’re thinking about equity release, use the calculator below and see how much you can release now.