Equity release is one of the best financial opportunities for homeowners over 55 living in the UK. But there’s a lot you must know about equity release interest rates. Whether a lifetime mortgage, home reversion scheme, or a retirement interest-only mortgage, you’ll want all the interest rates details before making any decisions.
In this comprehensive article, Jason Stubbs, founder and financial expert at EveryInvestor, will cover the A to Z of equity release interest rates. Take a look!
Interest Rates on Lifetime Mortgages
The most popular type of equity release, Lifetime mortgages, will come with compound interest. While usually fixed for life, some plans have capped variable interest rates.
New borrowers have the option of paying back the monthly interest or allowing it to compound. What’s more, you can stop and start paying the interest at any time.
If you don’t cover any of the interest in your life or there is some leftover, it will be repaid from the sale of your home when you die or move into long-term care.
Interest Rates on Home Reversion Schemes
Although a type of equity release, home reversion schemes don’t come with any interest. Instead, you sell a percentage or all of your property to the lender for tax-free cash.
The lender makes their money back because you sell your home to them below market value, but they benefit from the full value at the end of your plan.
Retirement Interest-Only Mortgage Interest Rates
While technically not equity release, retirement interest-only mortgages are a form of retirement mortgage and are worth discussing when reviewing interest rates. This new financial product was launched in 2018 and is slowly growing in popularity.
True to its name, with a retirement interest-only, you’ll need to pay off the monthly interest on your loan. If not, you can risk foreclosure. This is opposite to equity release, where you’re guaranteed to have the option to keep your home for the rest of your life.
The benefit of a retirement interest-only mortgage is that interest rates are sometimes lower than what you would get with an equity release.
How Expensive Are Equity Release Interest Rates?
Unfortunately, you’ve missed the boat if you’re looking for extremely low interest rates, and you may need to wait a while before they reappear. In March 2021, equity release interest rates hit a historic low, with the average rates sitting around 3.4%. Moreover, rates started at 2.3%, which is competitive with traditional mortgages.
They remained stable last year, only slightly increasing throughout the 2021 period. This is fortunate for borrowers who unlocked plans back then, seeing as interest rates are fixed for life. However, only plans unlocked from March 2022 come with the guaranteed option of voluntary monthly interest repayments, so there are pros and cons of unlocking a plan then vs. now.
These days, equity release interest rates start at 3.10% and can be as high as 6.89%. While these rates are more reminiscent of years gone by, equity release is vastly more flexible than its former years. Plus, making a few small monthly interest payments can vastly reduce the overall cost of the loan.
Interest rates on equity release in 2022 are not as low as they once were, but experts don’t expect them to come down until 2024. Therefore, now is the best and cheapest time to unlock the equity tied into your primary residence.
Fortunately, products are flexible, and there are a ton of options to select from, so you’re bound to find a product to suit your needs. Interested in equity release? EveryInvestor is here to be your guide. Discover the best lenders and financial advisers on the market who can assist you throughout the equity release process. Your dream retirement is just a few steps away.