Equity release interest rates
As of February 2023 the best equity release rate available for a lifetime mortgage is 5.51%** (MER) – fixed. The rate you are offered will depend on your circumstances.
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**The lender found offering the 5.51% (MER) rate is Legal & General.
Page last updated – 8th February 2023
How to get the best equity release rates in 2023.
If you want to get the best equity release deal then you need to find a provider with the lowest rates.
Equity release interest rates have gone up, just like most mortgage products in the current financial climate. According to data published by Key the average interest rate for new equity release plans in the UK increased significantly in 2022, with an average rate of 4.53% in October.
This is a significant increase from the average rates seen in the previous three years, which ranged from 2.87% to 3.43%. Although the interest rates have gone up, they are still historically low compared to rates seen in previous decades.
But don’t worry, we’ve got some good news! The current best equity release interest rates are 5.51% (MER) fixed for a lifetime mortgage.
To find the best equity release rates for your specific situation, you need to consider factors such as your age, property value, the amount you want to release, and your general health and lifestyle factors (like smoking). We’ve got a handy guide on medically enhanced equity release if you’d like to learn more about it.
What factors influence equity release rates?
Requested Loan to Value (LTV)
The LTV has a major impact on equity release rates. LTV is the amount you require to borrow as a percentage of your property. Usually, the more you want to release, the higher the interest rate.
Now, although your age doesn’t directly impact the equity release rate, it does affect the maximum amount of money you can release. This will then affect the requested LTV and in turn, will increase the interest rate. Again, the higher the amount you wish to borrow, the higher the corresponding rate will be.
You can use our free equity release calculator to give you an estimate of how much equity you could potentially release. It does not require any personal information, nobody will contact you, and you can also get a rough estimate of the extra you might be able to release if you qualify for enhanced equity release.
Interest accumulates on the amount that you release and will compound over time. You get charged interest on the interest. If you decide to leave the equity release interest to build over time, rather than paying anything back, the amount you owe will inevitably increase. You can use our free equity release compound interest calculator here.
For example, say you took out a lump sum lifetime mortgage of £75,000 at 6.50% interest.
At the end of the first year, the total interest would be £4,875. The total outstanding balance would now be £79,875.
At the end of the second year, your lender would again charge you 6.50% interest, but this would be calculated using the closing balance of the first year.
You would be charged 6.50% on £79,875 which would be £5,192, making your outstanding balance £85,067.
Compound interest means the amount you owe can increase significantly if you don’t make any repayments.
Let us look at how this would increase over 10 years:
Fixed Interest Rates
Most equity release rates are fixed for life when the plan is set up. Fixed interest rates remain the same throughout the length of the plan and are not subject to increasing base interest rates. This gives you some peace of mind that you know what interest you will be charged on your equity release each month.
What Do (AER) and (MER) Mean?
You may have noticed that when comparing equity release plans that the equity release interest rates are quoted as (MER) and others as (AER).
(AER) stands for the Annual Equivalent Rate and represents the rate of interest added over one year.
(MER) stands for the Monthly Equivalent Rate and represents the interest rate added over the year but divided over every month.
Your chosen equity release specialist will be able to advise you about this when they find the best equity release rates for your circumstances.
Equity release rates example:
You take out a lifetime mortgage (lump sum) for the value of £45,000. In our example, you have two equity release interest rates available – 5.5% (MER) and 7.5%(MER).
As you can see from the chart above if you managed to get the lower equity release interest rate you would save £114,310 over 25 years!
Average Equity Release Interest Rates Over Time
In the chart below you can see how the average equity release has changed since 2013. What will 2023 and beyond bring?
What other costs are involved with equity release?
This is the fee a broker will charge you for their services. It will either be a percentage of the total amount of equity you release (around 1.9%) or a set fee. Unfortunately, there are no hard and fast figures for these fees as it is all based on your own individual circumstances, but some brokers waive the application fee as they get paid directly from the provider in commission.
Independent Property Valuation Fee
This will only be payable depending on the value of your property and the individual provider’s terms, and if it is required then it will be payable when you submit your equity release application.
You must instruct a solicitor before you can release equity from your home and according to our research the average legal fees for an equity release solicitor are £1,058 including VAT depending on the case.
What is the total cost of equity release?
There is no way of accurately reporting the total cost of equity release across the market as every case is different, but, Martin Lewis at Money Saving Expert , estimates that the total cost of setting up equity release is between £1,500 and £3,000, which seems about right.
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So, you’ve decided that equity release is the right option for you?
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