Equity Release Interest Rates

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Finding the best equity release rates in 2024

Sourcing the best equity release deal is crucial when comparing equity release interest rates and providers. 

Later Life Finance are a specialist broker and will help you navigate the whole market to find the best lifetime mortgage quote for you. 

Contact us for an up to date quotation and illustration as the market changes daily. 

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Equity release interest rates compared (Updated February 2024)

What is the average interest rate on equity release?

The lowest Equity Release interest rate is currently 5.25% (MER) fixed for life.

The highest interest rate in the market is 9.5% (MER).

Data from Moneyfacts Group PLC indicates that equity release product pricing improved from an average rate of 7.52% in July to 6.63% in September 2023 .

The Equity Release Council’s Autumn 2023 Market Report shows that the gap between lifetime and residential mortgage rates has fallen significantly both over the last decade and in the last 12 months, making lifetime mortgages more competitive even in an environment of higher interest rates.

Are Equity Release Interest Rates Fixed?

Equity release interest rates are fixed for life, which provides long term certainty for homeowners over 55 raising tax free cash from their homes. 

Lifetime fixed interest rates combined with the ability to make voluntary repayments create a flexible solution for raising cash from your home. 

Request an illustration and we’ll put together personalised projections based on your overall requirements, including any planned repayments you may wish to make.

We source the best lifetime mortgage interest rates from the best lifetime mortgage providers to secure you the top deals. 

Do interest rates go up on equity release?

Interest rates are fixed for life on a lifetime mortgage, and once setup will not increase (or decrease), as they are fixed for life. 

The equity release council Autumn  2023 report provides an overview of equity release interest rates:

Data from Moneyfacts Group PLC indicates that equity release product pricing improved from an average rate of 7.52% in July to 6.63% in September1. The Council’s Autumn 2023 Market Report shows that the gap between lifetime and residential mortgage rates has fallen significantly both over the last decade and in the last 12 months, making lifetime mortgages more competitive even in an environment of higher interest rates.

There are several options with equity release to help reduce the effect of interest on your equity. 

How to reduce the effect of interest on equity release: Voluntary payments and drawdown plans

Although equity release interest rates are fixed for life, there are methods to reduce the impact of interest on your equity from compounding interest. 

  • Voluntary repayments
 

Repayments are a standard feature of all lifetime mortgages since the equity release council revised their rules to incorporate voluntary repayments as standard. 

As a specialist broker, we provide detailed illustrations and projections based on your intended repayments to show how much equity you can preserve. 

The savings to be made can be impressive over the lifespan of the mortgage. 

  • Drawdown Lifetime Mortgages
 

Drawdown lifetime mortgages provide the facility to draw more cash in the future without incurring interest on the money not yet taken. 

This means you only pay interest on money actually taken, which helps reduce the cost of interest and is a very economical method of raising cash as it’s required. 

The drawdown plan is charged at the prevailing interest rate at the time of further borrowing. 

Voluntary repayments can still be made on the additional funds drawn to avoid compound interest accruing. 

Our expert lifetime mortgage advisers will help you explore your options without any pressure and compare the lifetime mortgage market for you. 

Calculate Your Equity- Our equity release calculator gives INSTANT RESULTS.

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Comparing the Best Equity Release Interest Rates

Comparing equity release interest rates is a good starting point when considering equity release as an option. 

However, finding the best equity release interest rates isn’t the only area to focus on. Delving deeper into plan features and criteria for early repayment, downsizing and drawdown plans is also important. 

Plans also allow features including voluntary repayments to help reduce the effect of compound interest on the money released, and downsizing protection for moving and repaying the mortgage early. 

The benefits of making repayments with a lifetime mortgage is also crucial when considering the overall effect of interest rates on the money borrowed on your equity, and how much inheritance you may leave. 

Remember, a plan offering the most competitive interest rate may not have the most flexibility for early repayment, or downsizing.

Later Life Finance provide a free consultation to explain all your equity release options. To request a call back click here. 

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Who Offers the Best Interest Rates for Equity Release?

In November 2023, Just, Royal London, More 2 Life and Pure Retirement offer the most competitive interest rates starting from 6.3% monthly equivalent rate

Lifetime Mortgage Interest Rates for Equity Release

An important factor to consider with equity release is compound interest. There are safeguards in place to ensure the property value when the equity release mortgage is repaid minus the sum borrowed including compound interest accrued cannot exceed the value of your home. This is thanks to the equity release council no negative equity guarantee. 

Our equity release calculator provides instant results. 

2023 Lifetime Equity Release Interest Rates

When looking for a new mortgage solution, many people on existing interest only mortgages still wish to contribute mortgage payments on their new equity release plan. 

Most leading equity release providers offering lifetime mortgages allow voluntary repayments to help reduce or avoid compound interest on the plan. Because the plans are designed for retirement years, these repayments are not mandatory meaning there is no risk of default or repossession. 

Making regular repayments to an equity release loan can help increase the level of equity remaining for your estate when the plan is settled. 

Our equity release calculator provides instant results. 

Most lifetime mortgages allow voluntary repayments for flexibility and without any commitment. This means you can still service the interest without the same level of risk as a typical mortgage.

What influences equity release interest rates?

Lifetime mortgage Interest rates are linked to gilt yields which the government use to raise cash. The lifetime mortgage lenders use the performance of these gilts to base their interest rates on.

We search the whole equity release interest market and have access to exclusive lenders such as Standard Life Home Finance, who don’t offer their plans to all equity release brokers.

Equity release rates on lifetime mortgages are generally higher than standard mortgage rates because they are fixed for your lifetime, which provides longer term stability than standard mortgages.

When it comes to equity release best deals, rates have historically between 3% and 9%. 

All the companies that offer equity release plans will be authorised and regulated by the Financial Conduct Authority, which will give you some confidence even if you have never heard of the provider.  

What affects the interest rate charged?

The criteria which contributes to the interest rate applied to your lifetime mortgage include:

  • Percentage of Loan to Value

Generally, the greater the percentage of borrowing against your property value, or loan to value, the higher the interest rate on the lifetime mortgage.

  • Credit History

If you have County Court Judgments (CCJs) issued against you, certain plans with the lowest interest rates in the market may not be available due to the lenders criteria around credit.

Other lenders may offer you the flexibility to use the Equity Release to repay debts.

  • Plan features

Lenders have various features on their plans, such as a reserve facility, inheritance protection or downsizing protection. A higher interest rate may apply to access the benefits of certain features. 

Compound interest, what is it, and can I reduce the effect of the interest accruing?

Compound interest causes the money borrowed on a lifetime mortgage to increase. This is because interest is charged upon interest, allowing the loan owed to accumulate. 

If you are concerned about this effect, most lifetime mortgage lenders allow the interest to be repaid on a voluntary basis, which helps avoid compound interest building up on the mortgage. 

Many equity release companies now allow a standard order to be arranged to maintain regular payments to the mortgage. 

When comparing interest rates, it’s important to ensure you are comparing the same type to make sure it’s an accurate comparison. For example, MER vs MER and AER vs AER.

AER vs MER – what's the difference and how does it affect my mortgage?

Some providers quote Equity Release interest rates as MER and others as AER.

If you plan to make voluntary interest payments on a regular basis to help preserve more of your equity, MER is more important to consider as this will provide the true monthly interest cost. 

If you are not concerned with making monthly or regular repayments the AER will provide the most accurate projection of interest. 

  • AER stands for the Annual Equivalent Rate.

AER represents the rate of interest added up over one whole year.

  • MER stands for the Monthly Equivalent Rate.

MER represents the rate of interest added every month. The MER is often slightly lower than the AER.

Equity Release interest rate outlook in 2024

Interest rates are closely linked to government gilt yields. Following the economic turmoil in 2022 interest rates rose, however the outlook for 2024 is more positive once the overall outlook improves. 

The housing market is expected to see a decrease in property valuations, due to a reduced level of demand following interest rates rises affecting homebuyers and the wider property market. 

Our equity release calculator provides instant results. 

If you already have a lifetime mortgage you may be able to secure a lower interest rate plan that could save your estate thousands of pounds.

Speak with an adviser today. 

Equity release FAQs

The main downside to equity release is the effect of compound interest on the most common type-the lifetime mortgage. However, this interest effect can be avoided or reduced with voluntary repayments. The equity release council included voluntary repayments as a requirement for lenders to meet their strict codes of conduct. The ability to make voluntary, penalty-free partial repayments was made a compulsory feature for all products to meet Equity Release Council standards from March 2022.
Prior to finalising your decision on equity release, it is crucial to seek financial guidance with a qualified equity release adviser. Discussing your plans with an independent equity release adviser will enable you to compare the whole market, and your adviser will identify the most suitable solution to match your specific circumstances. Additionally, should you opt to proceed with equity release, it is essential to obtain legal advice. Your adviser will be able to suggest an independent solicitor who specialises in equity release.
While Martin Lewis does not provide a direct endorsement for equity release, he acknowledges that under specific circumstances, it can be a viable solution to access funds tied up in your home to meet living costs and provide financial security. Where downsizing has been ruled out, for example, Martin Lewis has a balanced view on the concept of equity release and it's benefits to homeowners seeking extra funds in later life, and advises independent advice on equity release is obtained.
Equity release provides you with a cash lump sum or a drawdown facility to take the cash over a longer timeframe. The "catch" with equity release is that the money released from your home, plus interest will need to be repaid when the property is eventually sold. With a Lifetime Mortgage, you will owe the money borrowed plus the loan interest accrued. If you make voluntary repayments to the mortgage this will help reduce the amount of interest repayable on the mortgage, and will help maximise any inheritance your beneficiaries may receive.
It takes between six and eight weeks for an equity release application to complete and to receive your funds. The timescale depends on whether you have a mortgage to repay from the money taken, and whether there are any legal processes which may delay the process, such as moving home or changing the title.
A lasting power of attorney, or LPA is not required to setup an equity release plan. However, having an LPA in place is important to ensure access to further funds from a drawdown plan if you ever lose capacity to make your own decisions, or cannot sign your wishes for physical reasons, such as a stroke. If you have not set up an LPA and it is required, the Court will need to appoint a deputy for you. Planning ahead is prudent to ensure you have arranged such measures in case an LPA is required in the future, and this can save a great deal of stress if and when the time comes to use the LPA.
Equity release funds are tax-free and can be used for anything you wish (providing any existing mortgage is repaid from the funds). Popular uses of equity release funds include repaying mortgages and unsecured debt, home improvements, a cash boost, purchasing second homes, and helping family with a financial gift.
Lifetime mortgages are the most popular form of equity release and provide the flexibility to move home and make voluntary payments, if preferable. Equity release customers unlocked £1.6 billion in property wealth in Q2 of 2022. (Equity release council)
An equity release application should take around eight weeks until you receive your equity release funds. This depends on whether you have an existing mortgage to repay and if any changes to the title are required, which can increase the timescale to arrange.
In July 2023 the lowest Equity Release rate is currently 6.03% (Monthly Equivalent Rate) fixed for life. The highest interest rate in the market is currently 8.64% (Monthly Equivalent Rate).