Lifetime Mortgage Interest Rates

Learn How Much Interest You Could Pay on Your Lifetime Mortgage
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Top Equity Release Interest Rates Could Save You Thousands. Discover the Secrets to Finding These & Learn the Implications of Higher Rates on You & Your Family…

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Lifetime Mortgage Interest Rates

Are you looking to supplement your retirement income, but you don’t know where to start?

You might want to turn to lifetime mortgage providers, as more than £4.8bn in cash was released through this equity release plan in 2021.

But, how do interest rates fare in 2022?

We’ll help you discover:

  • Why a lifetime mortgage is the most popular type of equity release.
  • How you can save money while still releasing equity by making monthly payments.
  • What loan amount you could get in later life.
  • If a lifetime mortgage comes with a capped or fixed interest rate.

Our research team is constantly reviewing the latest lifetime mortgage interest rates to keep you updated with top industry information.

Here’s what we’ve found in 2022!

What is a Lifetime Mortgage?

A lifetime mortgage is a type of equity release scheme that allows UK homeowners to unlock a loan secured against their estate in later life.

Lifetime mortgages are a fantastic way to supplement your retirement income by receiving a tax-free lump sum through a once-off income, drawdown facility, or a monthly salary.

How Does a Lifetime The Mortgage Works?

Lifetime mortgages work by your home being collateral against the loan.

You’ll release your property value and first repay your outstanding mortgage, before using the lump sum balance in any way you wish.

How much equity you are eligible to unlock will depend on your age, the value of your property, or the condition of your health.

When releasing equity, you have no option to make monthly repayments, instead, the loan and interest are repaid, usually from the sale of your home, when you die or enter long-term care.

Lifetime Mortgage Types

Lifetime mortgage providers offer a range of lifetime mortgages for later-life lending.

If you want to receive a loan amount through one of these equity release plans, you should get in touch with a financial adviser who can assist you to compare lifetime mortgages.

Note that all plans will likely impact your qualification for means-tested benefits1.

Interest-Only Lifetime Mortgage

With an interest-only lifetime mortgage, you’ll cover monthly interest payments to stop the interest from rolling up.

This way, when you pass away or move into permanent care, your family will receive a larger amount of your property value as an inheritance.

Drawdown Lifetime Mortgage

A drawdown lifetime mortgage is the most popular plan, with 57% of new customers selecting this option in Q3 of 20212.

With drawdown lifetime mortgages, your money will stay in a drawdown facility, and you’ll only unlock cash when you need it. This usually comes with a minimum of £5,000 to release at a time.

Lump Sum Lifetime Mortgage

With a lump sum lifetime mortgage, you’ll receive the full loan amount in one go.

You can use the cash lump sum in any way you wish and is ideal if you want to purchase a big-ticket item, go on a dream vacation, or make significant home renovations.

Enhanced Lifetime Mortgage

Enhance lifetime mortgages work by offering the maximum amount of equity and lower interest rates if you have a lifestyle or health condition.

If you smoke, have cancer, or have diabetes, you might qualify to release equity through these lifetime mortgage plans.

Buy-to-Let Lifetime Mortgage

Since 2009, a buy-to-let lifetime mortgage has been available on and off as an equity release option on buy-to-let properties.

These early loans necessitated a short-hold tenancy agreement3, and rental income had to at least cover the lender’s interest charge.

Income Lifetime Mortgage

Release equity through an income lifetime mortgage gives you the opportunity to use your property value to receive a monthly income for up to 25 years.

Voluntary Repayment Lifetime Mortgage

With a voluntary repayment lifetime mortgage, you can make ad hoc payments on your interest and loan amount to reduce the final amount owed.

You can usually make these mortgage payments at a minimum of £25 per month.

What Is the Average Interest Rate on a Lifetime Mortgage?

The average interest rate on a lifetime mortgage plan in 2022 is between 4% and 5% AER4.

The best lifetime mortgage rates are usually on an enhanced lifetime mortgage, starting at 2.9% and the highest later life mortgage interest rates are between 5% and 6.8%.

Your financial adviser will help you find the best plan for you that has the lowest interest rates and top features.

What Is the Difference between Equity Release & a Lifetime Mortgage?

Lifetime mortgages are a type of equity release and a lifetime mortgage plan is the most popular type of later-life lending.

Lifetime mortgage products are regulated by the Equity Release Council and if you end your plan early, you’ll likely incur an early repayment charge.

See How Much You Can Borrow, Using the Latest Lifetime Mortgage Interest Rates

Wondering how much of your property value you can unlock? Our lifetime mortgage calculator will give you the answer.

If you opt for an interest roll-up mortgage, you’ll want to find the lowest interest rates.

Luckily, all lifetime mortgages that are regulated come with a ‘no negative equity guarantee.’

What Are the Different Lifetime Mortgages Interest Rates?

Lifetime mortgage plans usually come with fixed equity release interest rates, but some lifetime mortgages give you the option of unlocking tax-free cash with capped variable interest rates.

Here’s more information!

Variable Interest Rates

A few equity release lifetime mortgage rates are variable instead of fixed. This means that instead of them being fixed for life, they will fluctuate.

However, all variable plans do have capped interest rates, meaning the rates can’t spike beyond a certain point.

Note that variable interest is usually more expensive than fixed interest rates.

Fixed Interest Rates

Lifetime mortgage rates are usually fixed for life and won’t fluctuate throughout the course of the loan.

A fixed interest rate means that you can work out exactly how much your interest will roll up annually, and no matter what happens with the industry or economy, the rates will stay the same.

Lifetime Mortgage Equity Release Interest Repayment Options

What’s fantastic about lifetime mortgages is that you can unlock your property value and can choose a flexible or drawdown facility, or just let the interest roll-up.

As years have gone by, lifetime mortgages have become vastly more flexible, giving you multiple repayment options.

Here’s more!

Roll-Up Lifetime Mortgage Equity Release Mortgages

Roll-up lifetime mortgages allow you to unlock your property value in a cash lump sum, or monthly salary, with rolled-up interest.

The interest will continue to compound and only be repaid, usually from the sale of your home, when you pass away or move to a long-term care home.

Drawdown Lifetime Mortgage Equity Release Mortgages

Instead of opting for a lump sum, reduce the amount owed on your later-life mortgage with a drawdown facility. This way, you will unlock your property value and it will enter a drawdown facility.

What’s great about this option is that you’ll only pay interest on the money you withdraw, rather than on the entire loan amount, delaying the interest from compounding too quickly.

Flexible or Voluntary Repayment Lifetime Mortgages

If you don’t pay interest, lifetime mortgage interest rates can be quite excessive, using up most or all of the equity tied into your home, even with the best lifetime mortgage rates.

Luckily, there is the option of a voluntary or flexible interest-paying mortgage, to reduce what you owe at the end of the loan. These plans allow you to pay off the monthly interest (from £25), and up to 10% of the loan annually.

What Is the Maximum Age for a Lifetime Mortgage?

The maximum age to release your property value through a lifetime mortgage is usually between 85 and 95.

The maximum age differs according to each plan provider’s lending criteria.

Furthermore, your age is a big factor in determining your interest rate, with optimal rates being available for older homeowners.

Can I Pay off Lifetime Mortgages?

You can pay off your lifetime mortgage equity release scheme but you may incur early repayment charges.

However, lenders allow you to repay up to 10% to 40% of the property value that you release annually.

Furthermore, lifetime mortgages offer you the chance to pay off the monthly interest with an interest-only mortgage plan.

Early repayment charges can be anything from 3% to 8% of the loan amount, depending on when you unlocked the cash.

In May 2022, lenders are offering more flexible plans, with ERC’s lowering, the longer you’ve had your equity release plan.

How Is Interest Calculated on a Lifetime Mortgage?

Your lifetime mortgage interest rates will be calculated by determining the age of the youngest homeowner (must be at least 55 and 2 people can opt for a joint plan), the value of your property through a detailed valuation, and the condition of your health.

A lifetime mortgage calculator will help you discover an estimate of the maximum amount of your property value you could be eligible to unlock.

How Interest Works with Lifetime Mortgages

Lifetime mortgage rates are designed to accumulate throughout later life, using up your property value.

Once your loan to value (LTV) is determined, you’ll be offered specific interest rates.

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

3% Interest Rate

YearLoan amountInterest at 3%Total owed
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
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
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

Other Lifetime Mortgage Costs

In addition to interest rates, lifetime mortgage costs include:

  • Legal Fees – You’ll need to hire a soliciter to assist you with all equity release schemes.
  • Arrangement Fees – An arrangement fee is paid to your lender for arranging your plan.
  • Valuation Fees – A detailed valuation is conducted to determine your property value.
  • Independent Financial Advice – Your financial adviser will guide you through the equity release.

A lifetime mortgage will usually cost you between £1,500 and £3,000.

What is the No Negative Equity Guarantee?

A ‘no negative equity guarantee’ is an Equity Release Council standard to ensure that the homeowner’s family will never owe more with their lifetime mortgages than the final sale property value, even if property prices plummet.

In Conclusion

A lifetime mortgage is a fantastic product for later life, and interest rates have never been lower.

To find the best lifetime mortgage options, seek independent advice from a financial adviser that’s an equity release specialist.

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