Equity Release Interest Rates

How Can You Get the Best Interest Rates on Your Equity Release Plan?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Looking for the Best Equity Release Interest Rates? Find Out Which Factors Affect Equity Release Interest Rates & How Interest Is Computed When Releasing Equity. Discover More Here.

If you aren’t up to speed on the most recent Interest Rates on Equity Releases, you may be stuck with an equity release plan that’s costing you too much!

Why are low equity release mortgage rates so significant, you may ask?

As experts in our field, we discuss the following in this article:

    If you’re not careful, you may be sold a plan with higher interest rates than necessary. 

    EveryInvestor is dedicated to bringing you the most recent equity release advice in 2022.

    We aim to provide you with the information you need to make the best financial decisions for your retirement. 

    You can rest assured that our dedicated team of writers and researchers will keep you up-to-date on the latest trends in retirement financial products.

    Before You Start Reading….

    Let’s See How Much You Can Release 👇

     

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    What’s the Interest Rate on Equity Release?

    The present interest rate on equity release starts at 4.07%.

    This is a considerable drop from the cost of equity release 5 years ago when rates were all over the 6% threshold.

    What’s the Best Interest Rate on Equity Release?

    The best interest rate on equity release in 2022 is 4.07%. 

    ProviderScheme NameMonthly
    (Rate)The amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed.
    Pure RetirementSovereign Flex Lump Sum (Fee) (AP)4.28%
    Pure RetirementSovereign Flex Lump Sum (Fee Free) (AP)4.35%
    AvivaLifestyle Flexible Option Fixed ERC4.65%
    Pure RetirementClassic Flexible Lump Sum 24.41%
    Pure RetirementClassic Flexible Lump Sum 14.46%
    Legal & GeneralFlexible Black Lifetime Mortgage Tier 1 Defined ERCs DTV (Fee)4.66%
    Legal & GeneralFlexible Black Lifetime Mortgage Tier 1 Defined ERCs DTV4.70%
    Legal & GeneralFlexible Pink Lifetime Mortgage Tier 1 Defined ERCs DTV (Fee)4.73%
    Pure RetirementSovereign Flex Lump Sum (4% Cashback) (AP)4.75%

    Updated: 19 July 2022

    Rates Table Based On:

    • Gender: Male (Single)
    • Age: 60
    • Property Value: £300 000
    • Release Amount: £30 000

    Important note: While a low-interest rate on a lifetime mortgage sounds appealing, there may be expenses connected with releasing equity that make it more expensive than other plans with higher interest rates.

    Why Are Low-Interest Rates on Equity Release So Important?

    Low-interest rates on equity release products are essential to minimise the compound interest and increase the value of your inheritance. 

    What Factors Affect the Equity Release Interest Rate?

    Equity release interest rates are affected by the amount of money you borrow in relation to the value of your property.

    This means that the larger the portion you wish to release, the higher the interest rate will be. 

    Other factors that affect equity release include: 

    Age

    Your age can directly impact the interest rate on your loan and affect the maximum amount that you are eligible to borrow.

    Therefore, you could say that your interest rate is indirectly affected by your age. 

    Product Features

    Products with features such as inheritance protection or no completion fee may push the premium up, resulting in higher interest rate.

    It is vital to consider the whole cost of the plan over the predicted term and be aware that lower interest rate plans may incur additional fees that ultimately affect total cost. 

    Credit History

    Your credit history1 could affect your eligibility for specific programs and interest rates.

    Requested Loan-to-Value

    Your requested loan-to-value2 or the amount you need to borrow as a proportion of your property significantly influences your interest rate. 

    The closer you are to your maximum accessible amount, the higher your interest rates.  

    Marital Status

    If you’re married and opt to apply as a couple, lenders will calculate how much equity you may release based on the youngest spouse’s age.

    Surveyor’s Valuation

    When valuing your property, a surveyor3 will refer to comparable properties in the region and take into consideration several factors, including:

    • Your property’s current worth
    • Location
    • Condition
    • Type of property
    • Marketability
    • Current market mood

    Before You Continue Reading….

    Let’s See How Much You Can Release 👇

     

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    How’s Interest Computed on Equity Release?

    Interest is computed on equity release through compound interest principles.

    Let’s try to break it down. 

    • Month 1 – you pay interest on your loan amount. 
    • Month 2 – you pay interest on your loan amount PLUS the first month’s interest. 
    • Month 3 – you pay interest on your loan amount PLUS your 1st and 2nd month’s interest. 

    Therefore, the interest is being ‘compounded’ every month, creating a new loan amount every time interest is added.

    And so it goes on until your loan PLUS all the accumulated interest is paid off. 

    How to Reduce the Rate of Interest Paid on Equity Release Schemes

    If you’re looking to reduce the rate of interest you pay on equity release, consider the following pointers:

    Drawdown Reserve

    A drawdown reserve allows you to unlock the cash in your home as and when you need it instead of taking the total amount. 

    You will only be required to pay the interest on the amount you withdraw, which means a saving on the overall interest.

    Downsizing Protection

    Downsizing protection is an excellent exemption offered by some lenders,

    Which allows clients to pay their equity release back early when they move home without incurring any early repayment charges. 

    This feature enables you to downsize to a smaller house at any time without incurring early repayment penalties on your current mortgage.

    Interest Repayments

    You have the option of repaying the monthly interest on your equity release loan, stopping and starting whenever you wish.

    Loan Repayments

    You have the option to repay a portion of your loan annually, without facing penalties. This can be anywhere from 10% to 40%, lender dependent. 

    Fixed vs. Variable Interest Rates

    The interest on a variable loan fluctuates based on an underlying benchmark rate or index that periodically changes. 

    The interest on a fixed interest rate loan remains the same for the life of the loan.

    What’s the Difference Between AER & MER?

    AER stands for Annual Equivalent Rate and is the rate of interest compounded over a year. 

    MER stands for Monthly Equivalent Rate and represents the annual interest rate added to a loan divided by the number of months. This typically tends to be lower than the AER. 

    Common Questions

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

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

    In Conclusion

    Choosing to release equity from your home is an attractive option to boost your finances.

    And opting for a plan with the lowest Interest Rates on Equity Release seems like a no-brainer. 

    But don’t be fooled. 

    With so many factors affecting the total cost of your loan, it would be silly to base your decision on interest rates alone. 

    Take the time to research the products you’re interested in.

    Get advice from a qualified equity release expert and ensure that the provider you choose is a member of the Equity Release Council.

    How Much Can You Release?

    Use the FREE Calculator Below 👇

     

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    Value of Your Home?

    50000

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    Editorial Note: This content has been independently collected by the EveryInvestor 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.