Listen up! Lifetime mortgage interest rates have never been as competitive as what they are in Jan 2022.
If you don’t act fast by joining one of the 40,000 UK citizens who’ve already unlocked equity this year, you might lose out on the cheapest rates of all time.
By reading this article, you’ll discover:
- The interest rates you could achieve with a lifetime mortgage in Jan 2022.
- Where to find the best lifetime mortgage interest rates.
- How interest is calculated on a lifetime mortgage.
It’s our role at SovereignBoss to constantly keep our finger on the equity release pulse. Therefore, we’ve spent hours studying the latest interest rates that regulated lifetime mortgage plan providers offer. Find out now!
What’s the Average Interest Rate on a Lifetime Mortgage?
The average interest rate on a lifetime mortgage is around 3.3%. However, rates can start from 2.38%. In the past, lifetime mortgage interest rates were usually between 4% and 6%, but today, you can generally expect to pay under 4%.
Interesting read: Are Equity Release Interest Rates Competitive in Jan 2022
Best Lifetime Mortgage Rates at Jan 2022
Check out details of the best lifetime mortgage interest rates that you could currently achieve:
Lifetime Mortgage Rates – Jan 2022
| PLAN PROVIDER | FIXED MONTHLY INTEREST RATE | ANNUAL RATE (AER) | MAXIMUM LOAN-TO-VALUE | MAXIMUM EQUITY OFFERED |
| Legal & General | 2.68% | 2.71% | 38% | £2,000,000 |
| More2Life | 2.38% | 2.51% | 32% | £1,000,000 |
| Canada Life | 2.58% | 2.60% | 28.8% | £1,000,000 |
| Pure Retirement | 2.51% | 2.57% | 33.5% | £725,000 |
Note: The maximum equity offered is subject to your circumstances and based on the value of your home. This maximum is the cap available for higher valued properties.
What’s the Difference Between Equity Release & a Lifetime Mortgage?
Lifetime mortgages specifically refer to plans where you’ll borrow money against your home’s value, but you’ll still retain 100% ownership of the property. On the other hand, equity release is the umbrella term used for a group of later-life mortgages, and lifetime mortgages are the most common type of equity release.
Discover more about lifetime mortgages or equity release mortgages right now!
How Is Interest Calculated on a Lifetime Mortgage?
Interest on a lifetime mortgage is usually fixed and is calculated daily. Rolling interest2 means that your loan amount could increase drastically over time. The interest will reduce the equity available in your home, especially if your lifetime mortgage spans a considerable period.
Check out our free online lifetime mortgage calculator.
Examples of How Compound Interest Works on Lifetime Mortgages
Since we’re here to support you through your lifetime mortgage journey, we thought we’d make things easier by giving you a sense of how much interest you could end up owing after a set time period.
What’s more, we’ve created examples with different interest rates; 3%, 4%, and 5%. Take a look:
£50,000 Loan on a 3% Annual Interest Rate (AER)
| YEAR | LOAN AMOUNT | 3% INTEREST ACCRUED | TOTAL AMOUNT OWED |
| 1 | £50,000 | £1,500 | £51,500 |
| 2 | £51,500 | £1,545 | £53,045 |
| 3 | £53,045 | £1,591 | £54,636 |
| 4 | £54,636 | £1,639 | £56,275 |
| 5 | £56,275 | £1,688 | £57,963 |
| 10 | £65,238 | £1,957 | £67,195 |
| 15 | £75,629 | £2,269 | £77,898 |
| 20 | £87,675 | £2,630 | £90,305 |
£50,000 Loan on a 4% Annual Interest Rate (AER)
| YEAR | LOAN AMOUNT | 4% INTEREST ACCRUED | TOTAL AMOUNT OWED |
| 1 | £50,000 | £2,000 | £52,000 |
| 2 | £52,000 | £2,080 | £54,080 |
| 3 | £54,080 | £2,163 | £56,243 |
| 4 | £56,243 | £2,249 | £58,492 |
| 5 | £58,492 | £2,340 | £60,832 |
| 10 | £71,165 | £2,847 | £74,012 |
| 15 | £86,583 | £3,464 | £90,047 |
| 20 | £105,342 | £4,371 | £109,556 |
£50,000 Loan on a 5% Annual Interest Rate (AER)
| YEAR | LOAN AMOUNT | 4% INTEREST ACCRUED | TOTAL AMOUNT OWED |
| 1 | £50,000 | £2,500 | £52,500 |
| 2 | £52,500 | £2,625 | £55,125 |
| 3 | £55,125 | £2,756 | £57,881 |
| 4 | £57,881 | £2,894 | £60,775 |
| 5 | £60,775 | £3,039 | £63,814 |
| 10 | £77,766 | £3,878 | £81,444 |
| 15 | £98,996 | £4,950 | £103,946 |
| 20 | £126,347 | £6,317 | £132,664 |
How Does a Lifetime Mortgage Work?
A lifetime mortgage is a loan that you take out against the value of your home. The loan and interest that’s compounded is only repaid by your family selling your property when you pass away or are moved into long-term care. Until then, you’ll still live in your home and retain 100% ownership.
Learn More: How Does a Lifetime Mortgage Work?
3 Different Lifetime Interest Mortgages Rates
What’s fantastic about lifetime mortgages in Jan 2022 is their flexibility. There are 3 ways that the interest on your loan can be handled. Here they are:
Roll-up Mortgages
Roll-up mortgages are the standard lifetime mortgage interest rates, as discussed above. The interest will continue to compound and be added to the loan amount. The total is then covered through selling your house.
Fear not!
You can rest assured that with the ‘no negative equity guarantee’ created by the Equity Release Council, your family will never owe more on your property than its final sale price. This is even if property prices plummet.
Drawdown Mortgages
Your next option is a drawdown lifetime mortgage, which is a great way to reduce the amount of interest accumulated by the end of the loan.
With a drawdown lifetime mortgage, you’ll agree on a set amount with your lender that will be placed in a drawdown facility. Your lender will then release funds to you on request, and you’ll only settle the interest on the money you withdraw.
The trick is only to take out money that you know you’ll need in the foreseeable future.
Note that with a drawdown facility, there will be a minimum that you can unlock, which can sometimes be around £5,000.
See the amount of money you can release with our drawdown lifetime mortgage calculator.
Flexible or Voluntary Payment
Finally, you have your flexible or voluntary repayment lifetime mortgages which give you the opportunity to reduce the loan amount by paying some of it off.
While this is the best option if you want to leave your heirs with the greatest inheritance, it can make your retirement finances a little more stressful.
You can choose to take out an interest-only lifetime mortgage, where you’ll pay off the monthly interest on the loan, preventing it from compounding.
The other option is a voluntary repayment lifetime mortgage. With these plans, you can pay off up to 10% of your loan annually.
What’s the Maximum Age for a Lifetime Mortgage?
The maximum age for a lifetime mortgage is somewhere between the age of 85 and 95. If you are closer to that age, your financial adviser might find a lender that will accept your age category or have no age cap.
Can I Pay off My Lifetime Mortgage?
Yes, you can pay off your lifetime mortgage, but you might need to cover early repayment charges. Some plans allow you to pay up to 10% annually.
Learn more: Are Early Repayment Charges Mandatory in Jan 2022
In Conclusion
With the best equity release interest rates so low in Jan 2022, lifetime mortgages can be an incredible way to beat the retirement financial blues. However, releasing equity sitting in your property is a big decision, and it shouldn’t be done without some serious consideration.
You must educate yourself on all the pros and cons. In addition, unlocking cash through a lifetime mortgage can’t be done without the assistance of a financial adviser. We strongly advise that you opt for a whole-of-market adviser.
We hope you’re able to find the best solution for you and your family!
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.
Rachel Wait
Personal Finance Journalist
Written by
John Lawson
Founder SovereignBoss
Reviewed by
Francis Hui
Senior Risk Manager
Katherine Read
Consumer Affairs Writer
Nicola Date
Writer & Journalist
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