Lifetime Mortgage Rates

The Best Lifetime Mortgage Interest Rates Available

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

Getting a Lifetime Mortgage Is a Huge Commitment That Will Span Several Years. So Before You Sign a Contract, Check Our List & See Which Deal Is Best for You.

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Lifetime Mortgage Rates

Listen up! Lifetime mortgage interest rates are slightly rising in 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 that you’ll find over the next few years.

By reading this article, you’ll discover:

  • The interest rates you could achieve with a lifetime mortgage in 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 4.5%.

However, rates can start from 2.9%.

In March 2021, lifetime mortgage interest rates were at an all-time low, but have since risen.

Best Lifetime Mortgage Rates at 2022

Check out details of the best lifetime mortgage interest rates that you could currently achieve:

Lifetime Mortgage Rates – May 2022

Legal & General4.05%4.32%38%£2,000,000
Canada Life3.13%3.18%28.8%£1,000,000
Pure Retirement3.09%3.13%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.

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.

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)

YearLoan Amount3% Interest AccruedThe interest on a bond or loan that has accumulated since the principal investment, or since the previous coupon payment if there has been one already.Total Amount Owed

3% interest is currently excellent and if you pay it off monthly, it will fail to compound.

However, as per the table above, if you pay off your annual interest on a £50,000 loan, you’ll need to fork out £1,500 per year.

£50,000 Loan on a 4% Annual Interest Rate (AER)

YearLoan Amount4% Interest AccruedThe interest on a bond or loan that has accumulated since the principal investment, or since the previous coupon payment if there has been one already.Total Amount Owed

4% interest is an average rate, but it’s higher than what one might achieve with a traditional mortgage.

Annual interest on a £50,000 loan would be £2,000, but if left unpaid, it will compound.

£50,000 Loan on a 5% Annual Interest Rate (AER)

YearLoan Amount5% Interest AccruedThe interest on a bond or loan that has accumulated since the principal investment, or since the previous coupon payment if there has been one already.Total Amount Owed
5£60,775£3,039 £63,814
20£126,347 £6,317£132,664

If you’re on the younger side and your loan amount is small, you can expect to pay around 5% interest or more.

A year on 5% interest is £2,500, but that’s before it compounds.

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.

3 Different Lifetime Interest Mortgages Rates

What’s fantastic about lifetime mortgages in 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.

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.

In Conclusion

With the best equity release interest rates so low in 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 w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
John Lawson

Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
kath icon

Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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