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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 4th December 2020*

We receive countless enquiries from customers who want to free up some of the cash held in their property and are looking for the best equity release interest rates on the market. Tracking down the best equity release deals can be a complicated process, and we strongly advise speaking to a competent broker with experience of this type of borrowing before you proceed.

In this article, we’ll take a look at some typical equity release interest rates so you can feel confident you’re getting access to the most competitive UK equity release rates through one of the expert advisors we work with.

We’ll also cover some of the details of how equity release interest is calculated and applied, including:

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How do interest rates on equity release mortgages work?

When you take out an equity release plan such as a lump sum, drawdown or lifetime mortgage, interest is rolled up and added to the outstanding balance of your mortgage to be repaid when the property is sold. You won’t have to pay back any interest prior to the sale, but it will contribute towards reducing the overall value of your estate.

In the case of the older-style ‘home reversion’ plans where equity is released by means of selling all or part of your home back to the lender, there is no interest to pay because no borrowing has taken place. However, you will no longer be the sole owner of your home.

For more details take a look at our article here.

The rest of this article will focus solely on the new equity release products such as lifetime mortgages.

Current equity release interest rates compared

If you’re looking to release some funds from your property, the good news is that interest rates on equity release mortgages have been getting steadily lower in recent years, in step with interest rates across the board.

Customers sometimes ask us “What is the interest rate on equity release?” and while it’s not always possible to give an exact figure, on average, interest rates for equity release come in somewhere between 3.4% and 6.5% at the time of writing.

So, how much interest do you pay on equity release?

The table below should give you an idea of current rates, along with some of the factors that can influence them.

The table below shows a selection of best equity release rates in 2019:

Product Monthly Interest Rate: Annual Interest Rate (AER): Term Type: Maximum LTV on your home: How much can you release?
Legal & General Lifetime Mortgage 3.49% 3.55% Fixed 42% £10,000 to £750,000 as cash lump sum
Legal & General Lifetime Mortgage 3.4% 3.45% Fixed 38% £100,000 to £2,000,000 as cash lump sum
Liverpool Victoria LV= Lifetime Mortgage 3.52% 3.58% Fixed 40% £10,000 and up as cash lump sum
Liverpool Victoria LV= Lifetime Mortgage 3.61% 3.67% Fixed 50% £10,000 and up as cash lump sum
Hodge Lifetime Mortgage 3.93% 4% Fixed 45% £15,000 to £500,000 as cash lump sum
Aviva Lifetime Mortgage 4.12% 4.12% Fixed 45% £15,000 to £600,000 as cash lump sum

Please note, the table above is for illustrative purposes only and does not reflect the full range of equity release products on offer.

For a more comprehensive idea of the range of available deals, speak to one of the specialist advisors we work with, who can guide you towards the best equity release deals for you, while keeping your individual circumstances in mind.

Whenever you compare equity release schemes, it’s important to look at the annual equivalent rate (AER) as well as the monthly rate, as this provides a more realistic figure for comparison. This is because there is compound interest on equity release products, and the AER takes this additional factor into account.

How to compare the best equity release mortgages

When you come to compare equity release plans, you’ll first need to have a good idea of what product types are available and how they differ. Take a look at our section on the different types of equity release plan here to familiarise yourself with the options.

To identify the best equity release plan for you, you will then need to decide on whether you’d prefer a lump sum or drawdown facility (or both), whether you want the option of making voluntary repayments and more.

Drawdown equity release interest rates do not tend to differ substantially from lump sum or other comparable products and the range of available rates is broadly the same between types, so this decision should not dramatically affect the rate you’re likely to be offered.

You will also need to check the details of how much can be released on each scheme, as each will have a minimum and often a maximum amount that can be taken as a lump sum.

Most lenders also specify a minimum and maximum property value, with some starting at £70,000 and the majority at £100,000, capped at £1.5m, £4m or even £6m in some cases.

Do I qualify for the best equity release rates in the UK?

Lenders take various factors into account when assessing applications for equity release schemes, and while each case is taken on its own merit, there are a few general rules to bear in mind. These include:

  • Equity release LTV rates: each lender will take a view on how much equity you need to have built up in your home before you can release any as cash. This will usually be set at 45% LTV or less, meaning you need to own at least 55% of your home outright to qualify for most products. A few will offer 50% or more in the right circumstances. Generally speaking, you’ll be eligible for the lowest equity release interest rates if your LTV is lower: see the equity release comparison table above for examples.
  • Access to Broker-only deals: some of the best equity release schemes are not available direct to the general public, and can only be accessed via a professional intermediary. This is another reason why working with a whole-of-market broker could save you money.

Bad credit and equity release rates of interest

If you have a less than pristine credit history, you may have assumed that you won’t get access to the cheapest equity release deals. Fortunately, you won’t need to go through an affordability assessment when applying for this type of product, so bad credit should not be a barrier to the best equity release rates in most circumstances.

Where can I find an equity release interest rates calculator?

We often get enquiries from customers who want to use an equity release interest calculator to help them decide which equity release mortgage to apply for.

While these tools can be useful in providing a rough, ballpark figure, the complexity of equity release products makes it quite difficult to get a realistic picture.

Is there a better way to compare equity release rates?

Yes! We recommend you speak to one of the expert advisors we work with as early as possible in the process to ensure you have all the information you need.

Speak to an expert on equity release mortgage rates

If you want to know more about interest rates for equity release mortgages and would like to speak to an expert for the right help and advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here and we’ll be in touch shortly.

Then it’s over to us: we’ll get to work finding the most suitable broker who is well placed to find the best equity release products and offers for your unique circumstances. We won’t charge you a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 4th December 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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