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Best Equity Release Rates for 2022

best equity release rates 2022

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

What are the best equity release rates available in 2022? If a lifetime mortgage is on your radar, you probably want to know how much interest you’ll be charged when taking out a plan this year. We explain how lifetime mortgages work, what you can expect to be charged and how to mitigate the interest you pay. Read on for everything you need to know about equity release interest rates in 2022. 

What is equity release and who qualifies to use it?

Equity release is an umbrella term for two financial products available to people over the age of 55 – and sometimes below the age of 85. These two products are called lifetime mortgages and home reversion plans. 

Both plans allow the homeowner to access some of their home equity as a loan with no monthly repayments. The debt only has to be repaid from the money raised from the sale of your home after death. Or it is paid back earlier if you move into care, in which case the home must be sold after moving into the residential care facility. 

To qualify for equity release in the UK, single or joint homeowners must meet the age requirement, and they must be releasing equity from their main residence that has a certain value, typically at least £75,000. The lender will complete additional checks on the property to evaluate an equity release application, and they will even check your credit score despite no repayments being necessary. 

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Why do people use equity release plans?

Because an equity release plan can only be used by people over 55, they tend to get used as a way to fund retirement and make life that little bit more comfortable as you get older. This might mean paying for private care professionals to come to your home a couple of times per week, or even adjusting the property to cater for elderly living, such as adding a chairlift. Or they may just be used to pay for holidays and life experiences.

It’s even possible to give the money away to family members who may need it to help buy a property or start a business. Just be aware that any financial gifts within seven years of your death can still be subject to inheritance tax

What is the catch with equity release?

The big problem with equity release is that it is an expensive method of borrowing. If you have a lifetime mortgage or a home reversion plan, both can cost you more than double the loan amount taken out. This may not be a concern if you do not have anybody to leave your estate to, but if you do, they will receive a much smaller inheritance than they would otherwise have done. 

Lifetime mortgage vs home reversion scheme

So, when you are considering an equity release plan in the UK, you can choose between two options. The first is a lifetime mortgage, which tends to be more widely available. These mortgages provide up to 60% of your equity as a loan that doesn’t request any repayments on the loan amount or the interest added to the loan. 

The loan interest rolls up each month, making the total owed grow bigger over time. It is often possible to make voluntary loan payments so the debt doesn’t grow too big and so less is taken from the sale of your property when the time comes. 

The alternative option – a home reversion plan – will not charge the homeowner any interest on the loan they take out. To ensure the lender makes a profit on the credit agreement, they simply ask the homeowner to give them a fixed percentage of the property’s future sale value. This percentage will be much greater than the percentage of equity released. For example, you may have to give up 50% of the future sale money in return for a 20% equity loan today. 

Which is the best equity release?

The best equity release method should be based on personal circumstances and should be discussed with an equity release adviser

The most popular method of equity release is a lifetime mortgage, which may be because the amount owed on a lifetime mortgage grows over time, in comparison to a reversion scheme where the debt jumps significantly from the outset. 

What is the current interest rate for equity release?

There is no “current interest rate” on equity release because the interest rate changes based on a number of factors. Just like any other loan or mortgage, the rate you are offered will depend on personal circumstances. 

What are the best equity release interest rates? (2022)

At the time of writing and subject to change, the best equity release interest rates are between 2% and 6%. The average interest rates can range from these figures up to around 9%.

What is the lowest interest rate on equity release?

The lowest interest rates you can find on a lifetime mortgage are around 2%. It can be difficult to get rates this low as they will be reserved for people of a specific age in certain circumstances.

Make the most of an equity release calculator

Looking for equity release plans is not just about finding the lowest interest rates. It is also important to fully understand how these interest rates will affect your total debt over time. For help understanding this easily, it is recommended to use an equity release calculator

An equity release calculator is an online tool where you can enter the loan amount you wish to take out, as well as the interest rate charged. The calculator will then show you how your debt will grow over specific periods of time, such as five years or ten years. Some more sophisticated calculators will be able to make these projections while computing any voluntary interest repayments you plan to make, thus showing you how making voluntary repayments can lower your debt. 

Get help finding the best equity release interest rates

Before applying for equity release you must receive professional financial advice. Many advisers also offer a brokerage service to help you find the best deals for your situation and needs. You should expect to pay 1-5% of the loan amount as a fee, or sometimes you can get their advice and services for a fixed fee of around £1,000. 

Which companies might have the best equity release interest rates?

Some of the most respected companies that could have the best rates are:

  1. LV
  2. More 2 Life
  3. Aviva
  4. Nationwide Bank
  5. One Family

Check these out and do your own additional research when searching for the best equity release rates in 2022. 

How to reduce the interest you pay in an equity release lifetime mortgage

Finding the lowest equity release rates is the best way to save money on the interest you’ll eventually pay back on your lifetime mortgage. But there is another way to reduce your interest payments…

A drawdown lifetime mortgage allows the homeowner to access their loan in stages, and some deals may just charge interest on the amount of the loan you have taken, rather than the whole loan available. This could be beneficial if you do not plan on spending all your loan at once because the amount of interest charged will be lower. 

What is the early repayment charge on a lifetime mortgage?

When you are considering the costs of a lifetime mortgage, you may also need to consider the early repayment fees on your deal. For those who may want to exit their agreement in the future, the early repayment costs should be looked at.

Early repayment fees are usually expensive on equity release plans because they are designed to last for life. There are some companies such as Aviva, that at the time of writing charge a 25% early repayment charge. But there are some plans that reduce the early repayment costs over time and even end up at 0%.

What are the lowest early repayment charges?

Some of the lowest early repayment costs are with companies like LV and More 2 Life. For example, LV only charges 5% during the first five years of the plan, reducing to 3% between five years and nine years. And after ten years there are no early repayment costs at all. More 2 Life also offers 0% fees after you have had their equity release plan for a decade. 

How much does equity release cost in total?

The total cost of equity release starts at around £2,000 to organise and get set up. This includes financial advice, application and solicitor fees. Of course, the total cost of equity release is much higher when considering the loan you must repay in the end.

More content on the best equity release interest rates and lenders

For more discussions on the different equity release providers in the UK, and guidance on the process of equity release, stay tuned in to MoneyNerd. We have over 100 new guides and articles to help you understand the different methods of equity release and related topics. All our content is made easy to read with no confusing terms – and it will always be 100% free!