What Is the Interest Rate on Equity Release [2022]

We are often asked ‘what is the interest rate on equity release?’, but before we answer this frequently asked question, we would like to talk about the general costs of releasing equity so that you can get a better idea of the amount you could be spending.

The amount that homeowners spend on equity release is variable as it depends on the loan they receive, which is calculated based on many different factors.

Some factors that are considered are the property’s value, the age of the homeowner, and the location of the house.

There are also other costs that go into equity release, such as administration fees, legal fees and valuation fees, of which the rates vary depending on which financial adviser you have selected and which equity release adviser you are with.

It’s also important to remember that different schemes will offer different loans, so you could be paying much more for one plan than another, based on how much risk the provider would face when offering you a loan.

What is a No Negative Equity Guarantee in an Equity Release Scheme?

With equity release, your house sale is expected to generate enough money to cover the loan you have taken out, but due to the unpredictable property market, this doesn’t always happen.

A ‘no negative equity’ guarantees that in this situation, you or your family would not be expected to pay back the additional money, so it puts many homeowners at ease given that they cannot predict if and when the value of their property is going to decrease.

Do I Have to Pay Interest On Equity Release?

With most equity release arrangements, it is not vital that you pay interest early, as it is accrued over time and owed back when you die or go into long-term care. The sale of your home is expected to cover these costs, allowing you to spend your money as you wish in the meantime.

Do I Have to Pay Compound Interest With an Equity Release Plan?

Yes, when taking out an equity release, most plans will require you to pay compound interest and the compound interest rate will vary. This simply means interest is charged on the loan as a whole, but again, it won’t be a requirement to pay this back until your home is sold, so it isn’t something you have to be concerned about.

What is the Interest Rate on Equity Release?

This depends on which type of equity release you take out, so we will give you an idea of the different rates for different schemes.

What is the Average Lifetime Mortgage Interest Rate in 2022?

As there are a wide variety of lifetime mortgages, it’s difficult to give a single figure for the average interest rate. For a general idea, interest rates on the lower end of the scale are around 2.5-3%, with the highest rates rising to almost 7%.

Some of these mortgages come with a fixed interest rate, so you know that it will not rise as you continue with the scheme, whereas others have a variable interest rate.

Do You Have to Pay the Interest on a Home Reversion Plan?

As home reversion does not involve any loans, you do not have to pay any interest on the money you are given. You will be offered a lump sum of tax-free cash in exchange for part or all of your property.

Does the Interest Rate on Equity Release Depend on the Lender?

Yes, interest rates for equity release certainly vary by provider, and equity release providers can alter their rates at any point. We recommend finding a reliable lender, such as One Family, Retirement Advantage or Hodge Lifetime to ensure the interest rate you are paying is reasonable.

If you are stuck, you can give us a call and ask about providers. We will tell you the names of more companies we recommend, as well as advising you on the interest required by each one depending on the equity release scheme you are interested in.

Which Plans Have Low Interest Rates 2022

One of the plans with the lowest interest rates is the lump sum plan, and this is because it is extremely popular so it is widely available via many different providers. With this mortgage, you receive the money all at once so it’s ideal for people who need quick access to a large amount of money.

However, people who want a slow, steady income may prefer a scheme that allows for monthly payments, as they will feel more in control of their finances if they do not receive the money all at once.

Another plan with a low rate of interest is the voluntary repayment loan, which allows you to repay the money whenever you are in the position to. There are no early repayment penalties which is great for people who would like to free themselves from the burden of being in debt as much as they can.

As well as being able to make payments towards the equity itself, you can pay towards the equity release interest, which will have a significant impact on your interest charges that remain at the end of the scheme, putting your family in a better financial position.

Which Plans Have a High Rate of Interest

Generally, drawdown mortgages come with a high interest charge. The interest rate is also variable, so you cannot rely on a fixed interest rate throughout the scheme.

This means the interest you are charged on your first lump sum could be significantly different to the interest you are paying on later withdrawals.

Enhanced mortgages are also known for high interest rates. However, you could get around this if you are in poor health, as this plan is designed to make things easier for people who are struggling, so you could receive benefits including a higher loan and/or a low interest rate.

Can I Repay My Interest Early When I Get an Equity Release Loan?

Yes, with many schemes, it is possible to repay interest early if you wish to do so. However, there may be some limitations with this, so it’s important to check with your prospective provider before signing off on anything.

Without a doubt, the best scheme for paying interest early is the voluntary repayment scheme, as you are not threatened by early repayment charges, which can be up to 25% of the value of your loan.

Use Our Equity Release Calculator For Free

If you want to release equity from your home and you aren’t sure how much you could be receiving, try out our free equity release calculator for yourself to find out how much equity you could release. All you need to do is input your age, the type of property you reside in, and the estimated value of your property.

Our calculator will come up with a predicted figure for you, but for a more specific quote, contact us and we will look at further considerations such as your credit rating, your income, the plans you are interested in, and whether you currently have an existing mortgage.

Consult an Equity Release Adviser

If you are considering equity release, the best thing to do is to consult an adviser about how to go about this in the best way.

It can be tedious to consider all of the various aspects of equity release, such as:

• Do I want variable interest rates or do I want to pay the interest as a fixed amount?
• Am I set on a lower interest rate or would I tolerate high interest on equity release if I had other benefits?

However, you must consider these questions if you want to get the best plan, otherwise you could end up with a scheme that’s not for you, and once you get equity release, it’s very hard to get out and to revert back to a traditional mortgage.

You could go to any equity release firm as they are required to provide you with unbiased advice.

However, you should go with Equity Release Warehouse as we are experienced in putting you in touch with the best firm, and we always have your best interests at heart.

If you don’t believe us, have a look at the various sections of our website where we have listed the pros and cons of many different parts of equity release.

You could have a look at the plans that are available, the help centre, or our blog to find out more for yourself.

At the end of the day, we cannot reduce the rate of interest in an equity release arrangement, but we can find the best interest rates for you based on how much equity you can release. Trust us with your decision.