Lifetime Mortgage Rates
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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%.
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 Provider||Fixed Monthly Interest Rate||Annual Rate (AER)||Maximum Loan-To-Value||Maximum Equity Offered|
|Legal & General||4.05%||4.32%||38%||£2,000,000|
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)
|Year||Loan Amount||3% Interest Accrued||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)
|Year||Loan Amount||4% Interest Accrued||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.
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£50,000 Loan on a 5% Annual Interest Rate (AER)
|Year||Loan Amount||5% Interest Accrued||Total Amount Owed|
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 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.
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.
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.
Can I Pay off My Lifetime Mortgage?
Yes, you can pay off your lifetime mortgage, but you might need to cover early repayment charges.
Certain lenders have always offered capped voluntary repayments.
However, since 31 March 2022, all new plans must come with the option of voluntary payments.
The annual amount is lender dependent, ranging between 10% and 40% of the total loan amount.
What Are the Costs of a Lifetime Mortgage?
The costs of a lifetime mortgage include application or completion fees, a property valuation, advice and legal fees, and compound interest.
How Much Can I Borrow?
The amount you can borrow with a lifetime mortgage will depend on your age, property value, and your health condition.
How Much Interest Will I Pay?
The amount of interest you will pay for a lifetime mortgage will be between 4% and 7%.
What Does a Lifetime Mortgage Cost?
A lifetime mortgage costs between £1,500 and £3,000.
What Affects the Interest Rate Charged?
Your age, property value, plan type, and the amount you choose to release will affect the interest charged on your lifetime mortgage plan.
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.
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