Equity Release Interest Rates

Equity release is fast becoming one of the most popular ways to enjoy tax-free cash in retirement. It is one of the simplest, most flexible and most efficient ways to enjoy capital otherwise tied up in your home. 

An equity release scheme is essentially a loan, secured against the value of your property. The money you release can be used whenever and however you wish. Many people use the cash for home improvements, holidays and long-term care provision. It can be offered as a lump sum, or in the form of monthly payments. 

Generally the loan is only payable when you move into care or pass away – which is one key attraction for many people. 

In this article we explain everything you need to know about equity release interest rates and how releasing equity could help you. 

In this article we’ll answer key questions, such as 

  • ‘How can I be sure I am getting a good deal?’, ‘
  • Is fixed interest better than variable interest?’ and 
  • ‘How do equity release rates compare between providers?’

Topics you will find in this article

An audio recording of this article can be found at the bottom of this page and on Youtube. You can also listen to this article and many others on Apple Podcasts and Spotify.

Read on to learn more about equity release rates and see the different options on offer from the UK’s leading providers. 

Equity release interest rates differ compared with other types of loan

Equity release interest rates tend to be higher than rates associated with a standard bank loan. For this reason it is not for everyone.

For example, equity release is most suited to people who need large sums of money borrowed over longer periods of time, rather than small amounts. 

As equity release schemes involve long-term borrowing, finding a good interest rate is key. Ultimately the interest rate will affect how much you will pay when the plan ends. 

It’s also important to factor in initial charges for setting up the equity release scheme, which can range between £1000 to £3000.

Consider how and when you’ll pay the interest

Whilst getting a good rate is key, you’ll also want to consider how you’ll pay the interest on your equity release plan. There are usually a variety of options to choose from depending on the product you select and the lender. These can include:

Roll-up interest payment

Roll-up equity release schemes are only payable when you pass away or sell your home to move into care. You’ll make no monthly payments on the loan or interest accrued. 

This is a great option if you can’t afford monthly payments or don’t want to worry about paying a monthly amount. However it may have a significant impact on your inheritance and the amount you have to leave when you pass away. 

Negative equity guarantee and caps can protect your family against having to pay more than the property is worth when you’re gone.

Drawdown lifetime mortgage

A drawdown lifetime mortgage is one of the most flexible kinds of equity release. You generally pay less interest and take out what you need, when you need it. 

Interest only lifetime mortgage

An interest only lifetime mortgage allows you to pay off the interest accrued on your loan every month. This reduces the amount of interest or eliminates it altogether so that only the loan itself is payable upon the sale of your property. 

It’s important to consider how you’ll pay the interest and when, as this may affect the affordability of the loan. 

"As equity release schemes involve long-term borrowing, finding a good interest rate is key. Ultimately the interest rate will affect how much you will pay when the plan ends"

Fixed rate interest vs variable interest

Like any loan or financial product, choosing between fixed rate interest and variable interest can be tricky. There are pros and cons attached to both – which you choose depends on your personal financial situation and preference.  

Fixed interest plans offer peace of mind. They are great if you know you have secured a low rate. But if you fix the interest when rates are relatively high you may find you pay more than you needed to. 

Conversely, variable interest rates could work out in your favour – but they come with the risk of large increases and a much bigger bill than you may have initially anticipated when the scheme ends. 

If you choose variable interest there are things you can do to protect yourself. Make sure there is a cap in place to prevent you from paying too much – and seek out a plan with a negative equity guarantee. This ensures that you won’t be liable to pay more than you expected when the scheme finishes. 

How do equity release rates compare between providers?

Generally interest rates tend to be comparable across the board for each individual product – but as with any product some providers offer a better deal than others. 

Different providers offer different interest rates, which may also change depending on your personal situation. This handy table demonstrates the current interest rates for the UK’s main equity release lenders. 

We have also included key benefits for each lender, so that you can make a well-rounded decision on which one might be a good fit for you. Sometimes it makes sense to pay slightly more interest if you also enjoy greater flexibility and fewer penalties. 

For more information on each individual product please go directly to the provider. 

What’s on offer may differ depending on personal factors such as age, credit rating and the value of your property. These factors will also affect how much you can borrow overall. 

Some lenders offer better rates and benefits for loyalty – so if you have another financial product such as insurance with them this is worth checking. 

How can you be sure you’re getting a good deal?

When it comes to equity release, a ‘good deal’ is about more than interest rates alone. 

Make a list of each lender and their equity release interest rates, plus any other benefits they may offer. Review the features and pick out which ones will be most advantageous for you. 

Then you can carefully consider each one and the pros and cons of the lender in question. You might like to consult with family and trusted friends to help you make a decision. 

As above, searching for impartial reviews can also aid you as you can see realistic impressions from genuine customers. 

Third party sites enable customers to post unredacted testimonials, so you can see exactly how positive or negative their experiences have been. This will help you as you make your final decision. 

If you’re still unsure, seek independent advice from a financial advisor. They can offer expert guidance based on your situation and help you to make a sound choice. 

Don’t decide based on interest rates alone

Whilst the rate of interest you pay is important there are other factors to consider when choosing a lender.

You should factor in additional features and benefits when you make your decision. These include:

Guarantees and protection

A good equity release product should have built-in protection so that it serves you well now and in the future.  It’s also incredibly important to ensure that the product you choose is authorised and regulated by the Financial Conduct Authority (FCA). 

Positive reviews from previous customers 

Seek out real reviews from people who have previous experience of equity release with the lenders you are considering. Choose third party sites where reviews are posted independently for an accurate impression of each lender. 

Flexibility

If flexibility is a concern it’s incredibly important to ensure that the equity release scheme you choose gives you the leeway you require. 

Look for plans that take into account moving in the future, leaving the scheme early and taking more money at a later date. In some cases your financial advisor can negotiate on your behalf with a lender to get a bespoke deal. 

Penalties and restrictions

Some plans come with very strict rules and regulations, imposing hefty fees and penalties should you fail to adhere. 

As life itself is uncertain it’s best to minimise your risk as much as possible, even if there is a reward attached to taking out such a strict scheme. Be sure to cover yourself and protect against unexpected fines where you can, just in case. 

Where can I find more information about equity release?

You can find more information on equity release and the different products available here on the website. 

We specialise in easy to digest, simple guides to help you better understand options available to you and later life finance. Our goal is to assist you as you navigate the market, enabling you to make sound choices which benefit you in the short and long term. 

For tailored guidance it is a good idea to seek expert advice from a financial advisor who specialises in later life finance and retirement. They can assess your situation and make a unique plan based on your requirements. 

Impartial, generic guidance can also be found via the Financial Conduct Authority and Equity Release Council

Listen to this article

 

Other informative articles on Equity Release

Equity Release Calculator

An equity release calculator allows you to effectively ‘try before you buy’ and plan ahead. It’s a great way to see how much capital you can (and should) release from your home. This articles explains how they work.

How Does Equity Release Work?

Equity release generally involves stumping up the entirety or a portion of the value of your property in return for cash. The cash can be spent however you wish. This article looks at how it works in more detail.

Pros & Cons of Equity Release

Equity release schemes do have many benefits – but they aren’t suitable for everyone. Each individual provider and type of scheme will also have individual positives and drawbacks.  This article looks at what you need to look out for.

Equity Release Interest Rates

Equity release interest rates tend to be higher than rates associated with a standard bank loan. For this reason it is not for everyone. For example, equity release is most suited to people who need large sums of money.

Is Equity Release a Good Idea?

Releasing equity is one of the most popular ways to access cash in later life. As a result many people are asking: ‘is equity release good or bad’? The answer to this question is not straightforward and this article looks at this.

Paying for Care

The cost of care can be a stressful issue at a sensitive time. Funding care is an important consideration when planning your income in retirement and long term care. This article looks at the different options available.

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