Lifetime Mortgage Interest Rates

Are You Wanting to Find the Best Lifetime Mortgage Interest Rates & Save?
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Looking for the Best Lifetime Mortgage Interest Rates? Find Out What Affects the Interest Rate Charged & the Difference Between Variable & Fixed Interest Rates. Read This So You Don’t Get Caught.

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 Lifetime mortgage interest rates are currently really low compared to the past few years but are slowly climbing.

Don’t miss this opportunity to unlock the equity in your home with a lifetime mortgage and benefit from a low fixed interest rate.

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

    The team at EveryInvestor takes pride in keeping abreast of the most recently available lifetime mortgage interest rates from certified lenders.

    Learn more here!

    What’s the Average Interest Rate on a Lifetime Mortgage?

    The current market average interest rate on a lifetime mortgage is roughly 4.5%.

    However, interest rates on a lifetime mortgage range from one provider to another and can start from as little as 2.5%.

    The rate you could be offered will depend on different factors, such as your age and the value of your property.

    How’s Interest Calculated on a Lifetime Mortgage?

    Interest is calculated on a lifetime mortgage based on a fixed interest rate that is agreed to when your provider makes an offer.

    Interest is calculated and charged on a compound basis.

    This means that interest is calculated annually on the initial loan amount, including the interest that has already been added to the initial capital value.

    In this way, you essentially pay interest on interest.

    Fixed vs. Variable Interest Rates

    A fixed interest rate differs from a variable interest rate in the following ways:

    Fixed-Rate Equity Release:

    Fixed-rate equity release is a product where the interest rate is set at the beginning of the loan and remains the same for the duration of the loan period.

    With a fixed-rate equity release plan, you don’t run the risk of the interest rate increasing at any time.

    Variable-Rate Equity Release:

    In contrast, variable interest rates can be volatile, which means interest payable can increase or decrease depending on the market conditions. 

    If you choose a variable-rate equity release plan, you risk interest rate increases when market conditions are bad; however, you can also benefit if rates drop.

    With a variable-rate equity release plan, your interest rate will change with market conditions, and you always run the risk of interest charges increasing drastically.

    Aer vs. Mer – What’s the Difference?

    AER1 stands for Annual Equivalent Rate. 

    This is the equivalent of the interest added over a one-year period.

    MER means Monthly Equivalent Rate, this represents the interest added over a one-year period divided over each month.

    An MER rate is usually a little lower than an AER rate.

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    Different Lifetime Interest Mortgage Rates?

    Lifetime interest mortgage rates are handled differently depending on the type of plan you choose.

    Current lifetime mortgages include a roll-up mortgage, drawdown mortgage, flexible or voluntary payment option, an interest-only mortgage, or a capital and interest mortgage.

    Roll-up Mortgages

    With a roll-up mortgage, you receive a lump sum on which interest is payable.

    The interest is compounded and then added to the capital value.

    The borrowed amount, including the rolled-up interest, is then repaid when your home is sold.

    Drawdown Mortgages

    With a drawdown lifetime mortgage, you’ll be able to release money when you need it, giving you more freedom than with a lump sum plan. 

    In the beginning, you agree on how much you can borrow. Once the initial lump sum is paid to you, smaller amounts can be released as necessary.

    Flexible or Voluntary Payment

    With a flexible or voluntary payment option, borrowers can choose to make voluntary payments to reduce the interest owed.

    A flexible lifetime mortgage also allows you to voluntarily pay up to 15% of the capital value annually.

    Any payments are ad-hoc and aren’t mandatory.

    Interest-Only Mortgage Rates

    Interest-only mortgage rates tend to be lower than standard lifetime mortgage rates and start from about 3%.

    If you have an interest-only mortgage, your payment covers only interest charges and doesn’t go towards capital borrowed. 

    You’ll still owe the lender the original amount you borrowed at the end of your loan term even if you make smaller payments than you would if you were paying a repayment mortgage.

    Capital & Interest Mortgage Rates

    Retirement capital and interest mortgage rates are lower than those on other lifetime mortgages and average at 3.4%.

    A retirement capital and interest mortgage works just like a traditional mortgage but is for retirees.

    Your monthly repayment will go towards your loan’s capital and interest portions and reduce the value owed until it’s zero at the end of your repayment term.

    What Are the Best Interest Rates I Can Achieve In 2022?

    The best interest rates you can achieve in 2022 could be 3.92%(AER), based on a 31% LTV2 if you’re aged 70 and up.

    However, the best interest rate that you can achieve on a lifetime mortgage is determined by several factors, such as your age and your property value.

    Your adviser will discuss your options with you.

    Here’s an example of how your interest rates could accumulate:

    3% Interest Rate

    YearLoan amountInterest at 3%Total 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
    (£17,195)
    £67,195
    15£75,629£2,269
    (£27,898)
    £77,898
    20£87,675£2,630
    (£40,305)
    £90,305

    4% Interest Rate

    YearLoan amountInterest at 4%Total 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
    (£24,012)
    £74,012
    15£86,583£3,464
    (£40,047)
    £90,047
    20£105,342£4,371
    (£59,556)
    £109,556

    5% Interest Rate

    YearLoan amountInterest at 5%Total 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
    (£31,444)
    £81,444
    15£98,996£4,950
    (£53,946)
    £103,946
    20£126,347£6,317
    (£82,664)
    £132,664

    Common Questions

    Can I Pay Off a 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?

    What Affects the Interest Rate Charged?

    In Conclusion

    Let your retirement financial blues become a thing of the past with lifetime mortgage rates still relatively low in 2022.

    If you’re considering a lifetime mortgage, it’s best to consult an expert before choosing a plan.

    It would be a good idea to work with your mortgage adviser to discuss the lifetime mortgage interest rates you could qualify for.

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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.