Equity Release Interest Rates

The Best Interest Rates on Equity Release Revealed

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

Are You Looking for the Lowest Equity Release Interest Rates & Costs? Find the Lowest Rates in Jan 2022.

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Breaking Down The Interest Rates You Will Pay With Equity Release

Don’t miss out on the lowest equity release interest rates of all time! 

Equity release schemes are fantastic financial products, but you could end up in trouble if you aren’t aware of what you can equity with the interest rate’s you’ll pay.

Luckily, we’re here to break things down for you. 

Are you wondering why low interest rates are so important? We’ll help you discover:

  • If you’re already an equity release plan holder but could be paying less.
  • The importance of low interest rates and how these will impact your family.
  • How to get the lowest possible rates on the market.
  • What will affects the rates you’ll achieve.

Our team of experts has studied over 220 equity release plans by more than 28 plan providers, and we’ve carried out an in-depth analysis of equity release interest rates in 2021. Are you interest to know what we found? 

Continue reading to find out!

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What’s Equity Release?

Equity release is a financial arrangement that allows older homeowners to release the cash tied up in their property, while allowing them to remain living in there for the rest of their lives.

The 2 most common types of equity release is a lifetime mortgage and a home reversion scheme, and most plans are available to homeowners aged 55 or more.

If you released equity before 2020, you’re likely paying more than you need to. If you’re on an older plan please read our article on ‘Switching Equity Release Plans‘. 

Who Can Open A Lifetime ISA

How Does Equity Release Work?

An equity release mortgage works by the homeowner’s primary residence being collateral against the loan.

You’ll first need to use the money to pay off your existing mortgage and then the balance of tax-free cash can be used in any way you wish.

While you can opt for a plan with partial repayments, you’re not obligated to make any repayments in your lifetime. Instead, the loan, plus compound interest charged is usually repaid from the sale of your home when you pass away or enter long-term care. 

Here’s more: What is Equity Release & How Does It Work?

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Equity Release Types 

There are 2 main equity release products available to you, a lifetime mortgage and a home reversion scheme. Both financial services1 give you the option to release tax-free cash in a lump sum, drawdown, a combination of the 2, or a monthly salary, but there are some key differences.

Lifetime Mortgages

A lifetime mortgage is a loan secured against your primary residence that allows you to unlock tax-free cash, without an obligation of repaying any of the loan or interest in your lifetime.

With lifetime mortgages, you’ll still retain 100% of your property. 

Full article: What’s a Lifetime Mortgage?

Home Reversion Schemes

A home reversion plan is an equity release product that involves selling all or a part of your property under market value, in exchange for tax-free2 cash. Your equity release provider will allow you to stay in your home, rent-free, until you die or enter long-term care. Equity release lenders receive their share of the home value when your property is sold at the end of your loan. 

Take note: Both lifetime mortgages and home reversions are regulated by the Equity Release Council. 

Full article: What’s a Home Reversion Scheme?

Best Equity Release Companies

What Are the Jan 2022 Interest Rates?

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Equity Release Loan-to-Value Table

Age of the Youngest HomeownerStandard Equity ReleaseEnhanced Lifetime Mortgage
What Can I Obtain

What Rates Could I Obtain with a Lifetime Mortgage?

The interest rates you can achieve on a lifetime mortgage will be anything from 2.3% to 6%. The rates you can achieve will depend on your age, the value of your property and the condition of your health.

An equity release adviser will provide independent financial advice to help you find a plan with the lowest equity release interest rates possible. 

Our FREE equity release calculator will help you determine the amount of cash that’s tied into your home. Try it here!

Discover more:Lifetime Mortgage Interest Rates in Jan 2022

Living Abroad When you Retire

Equity Release Interest Rates Case Studies

Case Study #1 – Couple aged 80 and 82

Property Value: £255 000.00 Client Information: Clients live in a flat and have no serious health issues. The Recommended Plan

  • Lender: Just.
  • Release: £123 760 + £6 288 cashback
  • Interest Rates: 5.60% MER (5.75% AER)
  • Lender Fees: £0 upfront & £0 completion

Case Study #2 – Single Retiree Aged 61

  • Property Value: £640 000
  • Client Information: The client lives in a house and has a life-threatening illness

The Recommended Plan

  • Lender: more2life
  • Release Approximately: £331 500
  • Interest Rates: Roughly 3.12% MER (3.16% AER)
  • Lender Fees: £0 upfront & £0 on completion

Case Study #3: Couple Aged 67 and 77

  • Property Value: £551 000
  • Property Type: Freestanding house

The Recommended Plan

  • Lender Aviva
  • Release Approximately £203 500
  • Interest Rates: Roughly 3.51% MER (3.57% AER)
  • Lender Fees: £0 upfront & £5 on completion
How Pension Rates Have Changed So Far

The Lowest Equity Release Rates Available in Jan 2022

The question is, how low can you go? Check these out!

  • Pure Retirement 2.32%
  • Legal & General 2.3%
  • More 2 Life 2.9%
  • Aviva 3.3%

Some of these lenders even have plans that include fantastic features like a free valuation. Such features can significantly lower your equity release costs!

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How Equity Release Providers Determine Your Interest Rates

The rates you can achieve and how much cash you can unlock are vastly determined by your personal circumstances, including the value of your property, the age of the youngest homeowner, and the condition of your health. 

Here’s more details!

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1.      Loan Amount & Property Value

The amount of equity you can release will first be based on the loan value that you select. The higher the amount you unlock, the lower the interest that you’re likely to achieve. Furthermore, when releasing equity, your home will go through a detailed valuation which will determine how much you can unlock and the equity release interest rates you can achieve.

2.      Your Age

Your age plays a big part in the amount of equity you can release from your home through a lifetime mortgage and home reversion equity release scheme. The older you are, the more you are likely to be able to release. You’re also likely to qualify for lower interest rates with lifetime mortgages.

3.      The Condition of Your Health

This is where an enhanced equity release plan comes into play. If you’re suffering from a life-threatening or severe illness, you’ll likely qualify for a plan that provides low interest rates to such individuals. You’ll need to fill out a form explaining your poor health. Several diseases qualify, including:

  • Diabetes
  • Cancers
  • Heart conditions

If you think you qualify, ask your financial adviser about enhanced equity release plans. Should you wish to, you can use your cash released to pay for advanced medical care.

4.      Product Features

Not all plans are created equally. It’s vital to study the small print, lending criteria and features of the different plans you’re considering. The plan provider will need to approve your property and personal details, so you might not have every single plan to choose from. However, always select a plan that comes with a ‘no negative equity guarantee’.

Furthermore, you’ll need to decide which plan you want to select, with the most popular being a drawdown lifetime mortgage. Look out for additional features, like a reserve facility or inheritance protection. With these, you’ll pay a premium that could come with higher interest rates. It’s up to you, along with the guidance of your financial adviser, to weigh out these pros and cons.

5.      Your Marital Status

Did you know that some lenders won’t allow you to unlock equity as an individual if you’re part of a couple? You can request a joint equity release if this suits you best. If you can, you might want to consider the oldest partner to release equity as an individual.

However, what’s great about a joint plan is that both parties can stay in the home until they pass away or move into long-term care. The equity release provider will consider the age of the youngest homeowner when working out your interest rates.

6.      Potentially Your Credit History

In most cases, your credit history won’t impact your equity release plan, and some lenders won’t even request to do a credit check. This is because the loan is purely determined by the value of your asset (AKA your home), and you don’t need to pay back the loan in your lifetime.

A past County Court Judgmentor insolvency might deter certain lenders, but you should still be able to find plan options to qualify for an equity release scheme. However, you may have to pay a higher interest rate. 

Pro Tip: You can use your equity release money as a means to pay off your debt without having to sell your beloved home!

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Understanding AER vs MER

Interest rates are quoted in 2 ways, AER vs MER. What’s the difference?

MER – Monthly Equivalent Rate

The MER is the rate calculated over the year and then divided monthly. It generally works out to be lower than the AER.

AER – Annual Equivalent Rate

The AER is calculated over a year. These rates are accumulated annually or monthly, and then the balance owed will be paid from the sale of your house when you pass away or move into permanent care.

Equity Release Interest Rates

Fixed vs Variable Interest Rates

Equity release interest rates can come in 2 forms: fixed and variable. Fixed interest rates are determined at the start of your plan and remain the same until it comes to an end. Variable interest rates can increase and are usually in line with the Consumer Price Index (CPI).

As per the Equity Release Council’s ruling, variable rates must have a cap and, therefore, cannot inflate disproportionately.

Equity Release Interest Rates

Historical Shifts in Equity Release Interest Rates

Before the Equity Release Council’s formation in 1991, the market was fraught with dubious lenders who took advantage of older folks, leaving some crippled with debt.

However, the industry is now regulated by the ERC and the Financial Conduct Authority (FCA), with most plans appearing on the financial services register. While equity release interest rates were exorbitant in the past, they’re now competitive when compared to rates of standard mortgages. 

Full Article: What is the Equity Release Council?

How Much Money Can I Borrow

How Much Does Equity Release Cost?

As well as the interest rate, there are additional costs associated with equity release deals. These might cost anything from £1,500 to £3,000 in total, depending on the providers you use and the plan you select. These costs will cover.

  • Solicitor fees
  • Arrangement fees
  • Valuation fees
  • Advice fees

In addition, you can expect an early repayment charge if you end your plan early. 

DISCOVER MORE: Equity Release Costs

home reversion calculator (2)

Common Questions

Who Can Help Me Find the Best Available Equity Release Interest Rates?

What Are the Lowest Possible Rates in 2021?

Will I Need to Make Monthly Interest Repayments With Equity Release?

Is Equity Release a Good Idea

In Conclusion

While releasing equity from your home can be a life-changing decision, your family can be left with little to no inheritance if your interest rates are too high. With interest rates currently at a historic low, now is the best time to release equity from your home.

With an ever-shifting economy, who knows where these figures will go in the future. Seek guidance from your independent financial adviser and shop around at various plan providers to find the lowest equity release rates available for you and your family. Finally, look at each plan holistically to ensure you’ve made the correct decision.

How Much Can You Release?

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor 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.
    2012 Journal of the European Economic Association Volume: 11, pp 101-122 DOI: 10.1111/J.1542-4774.2012.01095.X
    Alessandro Calza 1,Tommaso Monacelli 2,Livio Stracca 1
    1 European Central Bank ,2 Bocconi University 1234
  2. Developing Equity Release Markets: Risk Analysis for Reverse Mortgages and Home Reversions
    2013 Social Science Research Network DOI: 10.2139/SSRN.2198619
    Daniel H. Alai 1,Hua Chen 2,Daniel Wanhee Cho 3,Katja Hanewald 3,Michael Sherris 3
    1 University of Kent ,2 University of Hawaii at Manoa ,3 University of New South Wales 1
  3. Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions
    2005 Research Papers in Economics
    Charles P. Himmelberg ,Christopher Mayer ,Todd Sinai 1
  4. The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy
    2011 Research Papers in Economics
    Arvind Krishnamurthy ,Annette Vissing-Jorgensen 1
  5. Equity release and taxation of life annuities
    2013 Research Papers in Economics
    Niku Määttänen ,Tarmo Valkonen 12
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Nicola is a financial writer for EveryInvestor 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.