Lifetime Mortgage Rates

What Are Lifetime Mortgage Rates in 2022
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
What Rates Are Charged on a Lifetime Mortgage? Find Out the Different Lifetime Mortgage Interest Rates, What’s the Best Rate & How This AFFECTS YOU…

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Lifetime mortgage rates are rising slightly in 2022.

If you don’t act fast by joining the over 76,000 UK homeowners who unlocked equity in 2021.

You might lose out on the cheapest rates that you’ll find over the next few years.

Fortunately, our expert team has done the research for you, and we’re here to be your guide.

What You’ll Learn in This Article:

    At SovereignBoss, we’re constantly keeping our finger on the equity release pulse, regularly reviewing the interest rates for products by regulated providers.

    Here’s the latest scoop.

    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 as low as 4% to 7%.

    View the most current rates here.

    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 you could currently achieve:

    Lifetime Mortgage Rates – Aug 2022

    Plan ProviderFixed Monthly Interest RateAnnual Rate (AER)Maximum Loan-To-ValueMaximum Equity Offered
    Legal & General4.05%4.32%38%£2,000,000
    More2Life4.05%4.32%32%£1,000,000
    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 cap1 available for higher valued properties.

    How Is Interest Calculated on a Lifetime Mortgage?

    Interest on a lifetime mortgage is usually calculated daily and based on a fixed rate, meaning that the amount doesn’t change throughout your life.

    Rolling interest2 can cause your loan amount to 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

    The following are examples of the impact caused by interest, based on rates of 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
    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

    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
    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

    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.

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    £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
    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

    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.

    Different Lifetime Mortgage Interest Rates

    There are 5 different lifetime mortgage rates and how you can approach payments.

    These include roll-up mortgages, drawdown mortgages, flexible or voluntary payments, interest only mortgage rates, and capital and interest mortgage rates.

    Here’s more details about each.

    Roll-up Mortgages

    Roll-up mortgages are the standard lifetime mortgage interest rates.

    The interest will continue to compound and be added to the loan amount.

    The total is then covered by selling your house when you pass away or enter long-term care.

    There’s more!

    The ‘no negative equity guarantee’, implemented by the Equity Release Council3, ensures your family will never owe more for your property than its final sale price.

    This is even if property prices plummet.

    Drawdown Mortgages

    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 interest will only be charged on the money you withdraw.

    The trick is only to take out money that you know you’ll need in the foreseeable future.

    There will be a minimum you can withdraw each time, sometimes around £5,000.

    Flexible or Voluntary Payment

    Flexible or voluntary repayment lifetime mortgages means you’ll reduce the loan amount by paying some of it off.

    Fortunately you can stop and start payments whenever you wish.

    Interest-Only Mortgage Rates

    Interest-only mortgage rates may be lower than those of a plan where monthly payments aren’t required.

    Capital & Interest Mortgage Rates

    Paying the maximum capital allowed and monthly interest rates on your lifetime mortgage loan is the way to achieve the cheapest possible overall costs.

    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.

    What Is the Best Interest Rate on a Lifetime Mortgage?

    The best interest rate on a lifetime mortgage in Aug 2022 is 3.67% (AER) and it’s fixed for life.

    Common Questions

    Can I Pay off My Lifetime Mortgage?

    What Are the Costs of a Lifetime Mortgage?

    How Much Can I Borrow?

    How Much Interest Will I Pay?

    What Does a Lifetime Mortgage Cost?

    What Affects the Interest Rate Charged?

    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 serious consideration.

    Contact a whole of market financial adviser to help you find the best lifetime mortgage rates achievable.

    Before You Go…

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