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 Dec 2021.

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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!

If you released equity before 2020, you’re likely paying more than you need to. More than 16 500 UK residents have opted for equity release in 2021 and have received the best rates yet. If you’re on an older plan please read our article on ‘Switching Equity Release Plans‘.

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

  • If you’re already a 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!

What’s Equity Release?

Equity release refers to the use of financial arrangements to help homeowners release cash tied up in their property, while allowing them to remain living in their home.

Learn More: What Is Equity Release?

How Does Equity Release Work?

Simply put, equity release is a UK product that allows you to unlock the cash tied into your home, with no payments required in your lifetime. Instead, the loan, plus interest, is repaid from the sale of your home when you pass away or move into permanent care.

Learn More: How Does Equity Release Work?

Equity Release Types

There are two equity release options available to you.

  • Lifetime mortgageis a mortgage secured on your property (provided it’s your main residence), while retaining ownership.
  • Home reversionis where you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, but you have to agree to maintain and insure it.

What Are the 2021 Interest Rates?

Equity release interest rates are at an all-time low in 2021. More than 50% of lenders on the market are currently offering rates below 4%. This is a stark contrast to where we were 5 years ago; in 2016, you would have expected to obtain rates of around 6%. Now, some providers’ rates are easily around the 3% mark or even lower!

Top Tip: You’ll want to obtain the lowest possible rates. With a lifetime mortgage, the most popular type of equity release plan, interest is compounded over the years. The lower your rates, the less that will be owed to the lender from the sale of your home when you pass away or move into permanent care.

Some interest rates in 2021 are as low as 2.3%, but later we’ll help you understand what affects the rates you can achieve.

Below are some of the low rates currently offered by a few of the TOP equity release providers:

Equity Release Loan-to-Value Table

Age of the Youngest Homeowner Standard Equity Release Enhanced Lifetime Mortgage
55 29.5% 43.6%
56 30.5% 44.9%
57 31.5% 46.0%
58 33.0% 47.2%
59 34.0% 48.5%
60 36.2% 49.5%
61 37.2% 50.3%
62 38.3% 51.5%
63 39.3% 52.4%
64 40.3% 53.5%
65 41.3% 54.4%
66 42.4% 54.5%
67 43.4% 54.5%
68 44.5% 54.5%
69 45.5% 54.5%
70 46.5% 54.5%
71 47.6% 54.5%
72 48.6% 54.5%
73 49.6% 55.0%
74 50.6% 56.2%
75 51.7% 56.4%
76 52.7% 56.5%
77 53.8% 56.7%
78 54.8% 56.8%
79 55.8% 57.0%
80 57.0% 57.1%
81 58.0% 57.3%
82+ 58.2% 57.7%
What Can I Obtain

What Rates Could I Obtain?

By now, you’re likely asking what equity release rates you could achieve. The first step to finding out is to use our equity release calculator to determine the amount of cash that’s tied into your home. However, for your convenience, we’ve put together some 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 Rates Available in Dec 2021

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!

Make Sure Youre Eligible for A Full State Pension

How Equity Release Providers Determine Your Interest Rates

The rates you can achieve are vastly determined by who you are, the value of your property, and other factors we’re about to divulge below:

1.      Loan Amount and Property Value

When releasing equity, you’ll be told the amount of cash that’s tied into your home, as per the value of your property.

Once you select the loan amount, your interest rates will be calculated based on your property valuation and the amount chosen vs the amount available.

2.      Your Age

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

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.

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 Judgment or 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!

Grant of Probate

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 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.

Since the market is now regulated, rates have become standardised. The rise in the market, increased demand, and a rise in competitors have resulted in a significant fall in equity release rates, starting in 2020 and carrying on into 2021.

What’s great about taking out a fixed interest rate plan now is that even if rates rise, you’ll keep your low-interest rates for the rest of your life.

How Much Does Equity Release Cost? 

As well as the interest rate, there are additional costs associated with releasing equity from your property. 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

DISCOVER MORE: Equity Release Costs

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?

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.