Fixed vs Variable Equity Release Interest Rates in 2022

Fixed vs Variable Equity Release Mortgages - Which Should You Choose?

Fixed vs. Variable Equity Release Interest Rates? It's Vital to Know Which Is the Better Option. We'll Help You Discover the Truth!

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Fixed & Variable: Understanding Equity Release Interest Rates

The million-pound question is fixed vs. variable equity release interest rates, which should you choose?

Equity release has never been cheaper, with interest rates at an all-time low in 2022. Don’t miss out, as you never know how things could shift.

We’re here to help! In this article, we’ll help you discover:

  • If fixed or variable interest rates cost more.
  • How fixed and variable interest rates differ.
  • If you’ll need to renew your equity release interest rates.

At SovereignBoss, our editorial and research team has spent countless hours consulting industry experts to bring you the latest equity release news. Are you wondering what we found?

Find out now!

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.

Rates can be adjusted as often as yearly, and it all depends on your age and what type of equity release package you’ve taken out.

Do Fixed Rate Equity Release Plans Cost More?

Fixed-for-life equity release interest rates will usually be cheaper than an equivalent variable rate equity release plan.

While the average interest rate overall is 3.95%, fixed rates can be as low as 2.97% (AER) and variable rates from 3.61% (AER).

At present, only OneFamily offers plans with variable equity release interest rates. Let’s take 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 that 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 2.97% and 6.80% (AER).

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.

OneFamily’s plans include having a 2-year fixed lifetime mortgage. The interest rates range between 3.61% to 4.49% (AER), depending on how much equity you elect to borrow.

After the 2-year fixed period, interest rates will be set at a percentage above the Consumer Price Index (CPI) which is the standard indicator for inflation.

Your interest rate will then be updated annually on 1st December, based on the CPI of September that same year. If the CPI is at 0%, the rates will be at their lowest.

Furthermore, there will be a cap on your interest rates. This means that rates can’t be higher than a predetermined maximum. OneFamily’s plan has a yearly cap of 7.98% (AER).

Do I Have to Renew My Equity Release Interest Rate?

No, you don’t 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’s 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.

Still, with varying rates (adjusted annually), they’re more likely to go up than down as time goes by – which might not work so well if someone needs to keep their mortgage payments affordable.

Another point to consider with drawdown equity release is that you don’t have 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 pay off the interest on your equity release plan. 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’s never an obligation to repay any of the loan amount or interest in your lifetime.

How the Value of Your Home Could Also Change

When you consider that the amount you owe will increase, it’s important to keep in mind that property values might 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 £219,096.32.

Decrease: After 17 years, if the value of your house dropped by 1% each year, it would be worth £155,944.49.

Note this is just an example, and not exactly how much your property price could rise or fall.

If the value of your property falls, you might be concerned about how your beneficiaries will repay the remaining amount owing.

With plans that comply with the Equity Release Council’s 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’s 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.

If you own 100%, take out an equity release scheme with a high fee but better terms, or invest that money elsewhere.

Common Questions

What's the Average Interest Rate on Equity Release?

How Can I Have a Low Interest Rate on Equity Release?

How Is Equity Release Interest Calculated?

Do You Have to Pay the Interest When Taking Out an Equity Release Scheme?

In Conclusion

Many people are interested in equity release, but they’re unsure if the interest rate is fixed. While rates are fixed with a lifetime mortgage, other plans may have variable rates.

Some people might 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’s essential to read your contract and talk with your lender about the specifics before you commit. 

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

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