Fixed vs. Variable Equity Release Interest in 2025: Which Is Better?
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Key Takeaways...
- Fixed equity release interest rates are generally higher but provide stability, while variable rates can fluctuate depending on the market, potentially lowering overall costs.
- The better choice between the two depends on your personal circumstances, risk tolerance, and market expectations.
- The main risks of variable rates are unpredictability and potential increases that could make repayments more costly.
- A fixed rate ensures that your loan repayments remain constant throughout the loan term, providing financial predictability.
- Choosing a variable rate over a fixed one may be a suitable option if you anticipate decreases in market rates, allowing you to potentially benefit from lower repayments.
Fixed vs. variable equity release interest rates, which should you choose?
In This Article, You Will Discover:
At SovereignBoss, our editorial and research teams have spent countless hours consulting industry experts to bring you the latest equity release news.
Are you wondering what we found out about fixed vs. variable interest rates?
Therefore:
What is Equity Release?
Equity Release, in a nutshell, allows UK homeowners aged 55 or over access to the monetary value of their home via a loan.1
The money released is tax-free and the loan requires no repayments during the borrower's lifetime.
Although equity release can offer a financial lifeline to those entering retirement, it has some drawbacks that must not be ignored.
Some of these drawbacks include affecting the inheritance you plan to leave to your heirs, possible impact on means-tested benefits, compound interest that increases exponentially, and a number of fees payable should you decide to settle the loan early.
As with any big financial decision, equity release requires you to discuss your options with a qualified financial adviser.
They will be able to explore the pros and cons with you.
Are Equity Release Interest Rates Always Fixed?
Equity release interest rates are most commonly fixed for life, but you do get plans that offer variable rates. In such cases, the interest rates will be capped.2
Rates can be adjusted as often as yearly, and it depends on your age and what type of equity release package you have taken out.
Do Fixed Rate Equity Release Plans Cost More?
Fixed-rate equity release plans do not necessarily cost more than variable-rate plans.
The initial interest rate of a variable interest rate plan may be lower than that of a fixed rate plan. It is likely that your interest rate will change and increase over time after the initial fixed period.
In accordance with the CPI3, interest rates are updated annually.
Annual interest can be available from 5.85% to 7%*.
*Whilst we regularly review our rates, these may have changed since our last update.
A closer look:
Fixed Rate Equity Release:
The fixed equity release interest rates that you can achieve will depend on your age, the value of your property, and the condition of your health.
The closer to your maximum equity you unlock, the higher you can expect your fixed interest rate to be.
At present, equity release interest rates that are fixed-for-life will range between 5.85% and 7% (AER)*.
*Whilst we regularly review our rates, these may have changed since our last update.
Variable Rate Equity Release:
In the initial stages of your loan, variable equity release interest rates may be lower than fixed rates.
But, your interest rates will be reviewed, and they will be likely to change and increase over time.
Furthermore, there will be a cap on your interest rates. This means that rates can not be higher than a predetermined maximum.4
*The features mentioned and the amounts raised, are subject to the lender’s criteria, terms and conditions. These may take into account the age, health and lifestyle factors in order to provide an enhanced amount.
Do I Have to Renew My Equity Release Interest Rate?
No, you do not need to renew your equity release interest rates.
Equity release plans with fixed interest rates are intended to last a lifetime, and variable interest rates will automatically update annually.
However, to achieve lower rates (should the market dictate), you should regularly review your plan.
Drawdown Equity Release Interest Rates
With drawdown equity release interest rates, it is worth considering what these are before deciding on variable rates or a fixed-rate range.
Fixed rates can be set at any interest rate, and the repayments will stay the same.
With varying rates (adjusted annually), they are more likely to go up than down as time passes – which may not work so well if someone needs to keep their mortgage payments affordable.
Another point to consider with drawdown equity release is that you do not need to take out all your equity at once.
You can take it out gradually until you have used up the maximum amount agreed with the lender.
Can I Pay the Interest on My Equity Release Plan?
Yes, you can repay the interest on your equity release plan if your provider allows it.
One of the ERC standards dictates that consumers have the right to make voluntary repayments without incurring any penalty fees, in accordance to lending criteria.5
There are plans available that allow you to pay the annual interest monthly, or volunteer to do so when you have the means.
However, there is never an obligation to repay any of the loan amount or interest during your lifetime.
How the Value of Your Home Could Also Change
When you consider that the amount you owe will increase, it is important to keep in mind that property values may rise or fall.
And the amount remaining for your heirs after the mortgage is paid could be influenced by this.
This example is based on a property value of £185,000:
Increase: after 17 years, if your home’s value increased by 1% each year, it would be worth £220,000.
Decrease: After 17 years, if the value of your house dropped by 1% each year, it would be worth £156,000.
Note this is just an example, and not exactly how much your property price could rise or fall.
The figures mentioned above are for indicative purposes only.
If the value of your property falls, you may be concerned about how your beneficiaries will repay the remaining amount owing.
With plans that comply with the Equity Release Council’s6 requirements, you and your beneficiaries will never owe more than the value of your estate.
The ‘no negative equity guarantee’ protects you.
The lender will absorb the difference if your home’s value is insufficient to repay what you owe on your lifetime mortgage when you (or if a joint plan, the second borrower) pass away, or require transfer into long-term care.
How Do Equity Release Interest Rates Compare to Retirement Interest-Only (RIO) Mortgage Rates?
In some cases, the interest rates on equity release mortgages are higher than those of RIO mortgages.
This is because they work as a second mortgage, and there is an additional cost to this type of loan.
However, it does depend on how much equity you have in your property, which will dictate the interest rate for these types of loans.
Bear in mind that with RIOs you will be obligated to repay the interest each month.
Missing a payment could put your house in jeopardy.
It is best to discuss your options with a leading financial advisor or broker.
They will be able to advise whether an RIO is better than equity release or whether you should look at alternative options.
Common Questions
How Do Fixed and Variable Equity Release Interest Rates Compare?
What Are the Risks of Variable Equity Release Interest Rates?
Are Lifetime Mortgage Rates Fixed?
How Does a Fixed Equity Release Interest Rate Affect My Loan?
Can You Switch from a Variable to Fixed-Rate Mortgage?
When Should I Choose a Variable Equity Release Interest Rate Over a Fixed One?
Which is Better: Fixed or Variable Rate Equity Release?
In Conclusion
Many people are interested in equity release, but they are unsure if the interest rate is fixed. Whilst rates are fixed with a lifetime mortgage, other plans may have variable rates.
Some people may believe that equity release interest rates are fixed in all cases and never change.
But in reality, these rates can vary depending on several factors like inflation and economic growth.
Fixed vs. variable equity release interest varies on a case-by-case basis, so it is essential to read your contract and talk to your lender about the specifics before you commit.