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Equity release interest rates
Did you know that your property wealth can support your financial goals in retirement? For homeowners aged over 55, equity release can help to turn your goals into a reality. While it offers many advantages in supplementing retirement income, it’s important to understand the interest rate involved. Royal London Equity Release Advisers will offer insights into how interest rates work and whether equity release is right for you.
Royal London has chosen to introduce its customers to the experts at Royal London Equity Release Advisers. They will provide advice on equity release products from across the whole market and will make a recommendation to you based on your personal circumstances. You will not receive advice or any recommendation from Royal London. The information on this page has been provided by Royal London Equity Release Advisers to help you understand more about releasing equity.
Understanding how rates on equity release work
Understanding equity release rates helps you to make informed decisions on your financial future. With a Lifetime Mortgage, you benefit from the flexibility of voluntary payments, giving you more control over your budget.
Understanding the available rates and their impact on your overall debt is crucial. It not only aids in financial planning but also helps you decide if making voluntary payments is the right choice for you.
Do you pay interest on equity release?
Unlike traditional loans, you don’t have to pay interest on equity release monthly. Instead, it compounds over time, and you get to choose whether to make payments during your lifetime. If you make no payments, the interest will be added to the amount borrowed and compound over time, so what you owe can increase quickly. The full amount is typically repaid through the sale of the home after you pass away or enter long-term care.
What is the interest rate?
There is no single interest rate when releasing equity. There will be a range of rates on the market, and which is available to you will depend on several factors.
You can expect to find typical rates starting from around 6%. They could be higher or lower depending on your personal circumstances, however.
What is compound interest?
The interest on your Lifetime Mortgage is not charged on the original amount that you borrow. Instead, it is charged against the original amount plus the interest added in the previous period. Here’s an example of how it could work.
If you take out a Lifetime Mortgage of £40,000 at a fixed rate of 6% MER, and choose not to make any payments, interest will roll up like this:
| Years | Interest Charged (Approximate) | Amount Owed (Approximate) |
| 1 | £2,467 | £42,467 |
| 2 | £2,619 | £45,086 |
| 3 | £2,781 | £47,867 |
| 4 | £2,952 | £50,820 |
| 5 | £3,134 | £53,954 |
This will reduce the value of your estate. Also be aware that borrowing a lump sum may affect your entitlement to means-tested benefits.
What factors affect the interest rates?
Your expected loan-to-value
The loan-to-value on the amount you’re hoping to release from your home will affect the interest rate available to you. With equity release, you can generally release more of your home’s value as you get older.
How close you are to the maximum available will affect the available interest rates, with the maximum carrying the highest rate and the minimum the lowest.
Your chosen product features
Some products can come with optional features that you can choose whether to take advantage of. For example, you could look for a product that offers an inheritance guarantee, where some of your home’s value is ring-fenced to pass on to any beneficiaries.
Other products might instead offer downsizing protection, which could allow you to move home and repay the equity release in the future, without early repayment charges.
Features like this might come with a higher rate on the product. Speaking with an adviser can help you to find the best product and features to help you achieve your goals.
Your property
Different lenders will have different criteria for the properties they will lend against. For example, some might only lend against properties built in a standard bricks-and-mortar structure. If the lenders available to you are limited, the products available could carry higher rates.
Can you fix the interest rate?
Yes, you can. All lenders that are members of the Equity Release Council will offer products with fixed-for-life interest rates. Even if there is a variable rate, there must be a fixed upper limit.
Royal London Equity Release Advisers compare a range of products across the whole market, only considering those from lenders that meet the standards of the Equity Release Council.
Comparing rates between products
When choosing equity release, it’s essential to compare interest rates and features. By consulting with Royal London Equity Release Advisers, you gain access to a comprehensive comparison of all available products on the market, not just Lifetime Mortgages. Your adviser will also consider Retirement Interest-Only Mortgages and other borrowing options that might suit your needs better.
Your adviser will let you know that, if you choose a product with required payments, your home may be repossessed if you do not keep up with those payments.
It costs nothing to access this personalised comparison, and you can enquire without any obligation to move forward. An advice fee of up to £1,690 is only charged if you choose to take out a product with their help.
Get in touch
Take the first step today by using Royal London Equity Release Advisers’ equity release calculator. It will firstly help you to see how much you could release from your home. Then, it will put you in touch with an expert team who can help to answer your questions.
You can also call them direct at 0800 023 9315 and learn more about the available products.
More on equity release
“Royal London Equity Release Advisers” is a trading name of Responsible Life Limited. Responsible Life Limited uses Royal London branding under licence from Royal London Marketing Limited. “Royal London”, the “Royal London logo” and “Royal London Equity Release” are registered trade marks of The Royal London Mutual Insurance Society Limited. Royal London Marketing Limited and The Royal London Mutual Insurance Society Limited do not provide regulated mortgage advice.
Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register under reference 610205. Registered in England and Wales under company number 07162252. Registered office: Princess Court, 23 Princess Street, Plymouth PL1 2EX.
Responsible Life Limited is a wholly owned subsidiary of the Royal London Group who may benefit if you choose to take regulated mortgage advice. Being a wholly owned subsidiary of the Royal London Group does not alter Responsible Life Limited’s regulatory responsibilities.
If you choose a mortgage with required payments during your lifetime then your home may be repossessed if you do not keep up with the payments. Borrowing with a Lifetime Mortgage or Retirement Interest-Only Mortgage will reduce the value of your estate. Receiving a cash lump sum may also affect your entitlement to means-tested benefits. Think carefully before securing other debts against your home.
To understand the features and risks, ask for a personalised illustration. Your adviser will talk through the setting up costs of a mortgage. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,690.