Lifetime Mortgage Rates 2023

The interest rates, like all financial products, are integral to weighing up your decision to pursue an equity release scheme. Naturally, that applied to lifetime mortgages, where prospective borrowers want to see what interest rates they’ll receive on a plan.

This guide will walk you through the interest rates providers generally charge for lifetime mortgages, starting with defining the average rates on a plan.

What is the Average Interest Rate on a Lifetime Mortgage?

One of the most pressing questions about taking a lifetime mortgage is what your repayments will look like in the future. A lump sum lifetime mortgage will compound interest monthly. However, there’s no need to repay until your property gets sold upon death or you move into long-term care.

So what kind of interest rate would a prospective borrower see for taking out a lifetime mortgage? Interest rates tend to vary from a low of 4.53%, rising to 7.39%.

Various factors drive the interest rate you’ll get for your lifetime mortgage, including your age and property value. However, on average, borrowers find the rate float at just over 5%.

You can use a lifetime mortgage calculator as a quick way to determine what kind of rate you’d get should you apply for a plan. But let’s detail what drives those figures for interest rates.

How Does a Provider Determine My Lifetime Mortgage Interest Rate?

Any good lifetime mortgage provider would adhere to the code of conduct set out by the Equity Release Council, where rates are capped or fixed. However, various factors within those guidelines determine the rate you’ll get on your plan.

As mentioned above, they generally range between the 4% to 7% mark but can be higher or lower in extraordinary circumstances. The rates get determined by age, property value, and whether you apply as a single or joint plan holder.

However, other factors can also affect the interest rate, such as the type of lifetime mortgage you want and the amount you want to take out. We’ll outline below the variables determining interest rates, noting that you must be at least 55 and a UK resident to apply.

What Factors Affect Interest Rates?

Find the primary factors that affect interest rates on lifetime mortgages below.

• How much money do you want to take out against your home?
• Do you want to take a lump sum or only access your money when needed?
• Do you want to be able to make early repayments?
• Are you considering downsizing at any time in the future?
• Would you prefer a fixed or variable-rate mortgage?
• Do you want to add inheritance protection?

Let’s go into more detail to understand why these questions matter when providers determine interest rates.

Borrowing Amount

Some borrowers know how much money they need and seek to take a specific sum. Others will inquire how much they can borrow from the lender, possibly offering up to 60% of your home’s value, depending on your age and health.

Generally, lenders will allow borrowers to take around a maximum of 55% of the property’s value. But the amount you want can affect the interest rate, with more money taken generally resulting in a lower figure.

Requesting specific amounts usually limits the number of lenders available to you and, therefore, would result in higher interest rates.

Lump Sum or Drawdown Income

Depending on your financial plans, you may want to take a lump sum in your lifetime mortgage or an initial sum now and leave the rest to access later. These lifetime mortgage plans, standard and drawdown, affect the interest rate offered.

Different interest rates may apply to the type of lifetime mortgage desired, mainly because of how they work. For example, interest compounds monthly until the end of the contract in a standard lifetime mortgage, which only applies to the amount taken from your facility in a drawdown plan.

Higher or variable interest rates may apply to plans that have more unpredictable circumstances.

Early Repayment Options

More prospective borrowers for lifetime mortgages inquire whether they can settle part or all of their debt early. That’s because allowing interest to continue compounding can accrue a significant debt at the end of your contract, either when you die or move to long-term care.

Today, providers are being more flexible with early repayment where they have not been before. However, adding early repayment terms into your plan will likely impact your interest rate.

Downsizing Protection

‘Downsizing’ is another feature that more borrowers have inquired into featuring in equity release plans. Should you reach retirement and want to move into smaller accommodations and sell your home, you may want to use the money from the sale to clear the debt early. Subsequently, you can use that cash to purchase a new, smaller home.

More lenders will offer a feature called “Downsizing Protection”. It’s an agreement that allows borrowers to clear their debt after their home’s sale before they die or move into long-term care. Adding this into a plan will likely see a significant rise in the interest rate. However, it may be an essential requirement for a borrower.

Fixed or Variable-Rate

The majority of lifetime mortgage providers will offer fixed rates on plans. However, others will provide a variable rate on the schemes tailored to those looking to reduce the interest accrued on their borrowed sum.

There are risks associated with choosing variable rates, but they can save on the overall interest accrued in some circumstances. Discuss these plans with an equity release specialist to ensure a complete understanding of lifetime mortgages with variable interest rates.

Inheritance Protection

Leaving an inheritance is also another factor of concern for many borrowers. There have been many instances where interest has compounded to a significant amount, despite a negative equity guarantee, leaving little funds left over from the property sale.

‘Inheritance Protection’ ringfences a certain sum around the home’s sale to leave as an inheritance. However, adding this feature to your plan will affect your interest rates, likely increasing them.

So now we understand the factors that determine provider interest rates for lifetime mortgages; what are the best rates available?

What are the Best Interest Rates for Lifetime Mortgages?

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Provider interest rates change regularly and fluctuate according to your circumstances. However, you can gauge some of the best interest rates from leading providers below.

As you can see, a reasonable interest rate for a lifetime mortgage would be somewhere around the 4% mark, on the lower end of the average spectrum. Should you wish to learn more about the best lifetime mortgage providers, you can learn about them here.

So what would a reasonable interest rate look like when applied to a borrowed amount of £20,000?

As you can deduce, any higher interest rate in the average spectrum could significantly increase your outstanding balance. It’s a good idea to connect with an equity release specialist to understand what rates will apply to you and your total amount owed.

We’ll look at more examples of how interest can accrue on a lifetime mortgage further down the article. But first, many will ask what criteria you need to meet to apply for a lifetime mortgage, considering the broad age range shown in the table above.

Let’s review the conditions for applying for a lifetime mortgage.

What are the Conditions for Applying for a Lifetime Mortgage?

Earlier in the guide, we discussed the criteria for getting approved for a lifetime mortgage. Below you’ll find a more detailed outline of conditions you’ll need to meet to get considered for the equity release plan.

• You will need to be aged 55 or older (at least 60 in some cases) and be a UK resident.
• Your property must have a value greater than £70,000 and be your primary residence.
• You must not have any other mortgages or loans existing against your home, or released equity must pay off these debts.

Speaking to an equity release specialist before applying is a good idea, as lending criteria can interchange between lenders. An expert will have more of a grasp on the approval requirements for any plans you prefer.

So pending that you meet the criteria, what would the lifetime mortgage look like over time? Let’s provide another example with different rates applied.

Examples of Interest on a Lifetime Mortgage

Should you get approved for an equity release of £50,000 on your lifetime mortgage but don’t get the best rate, how would the interest accrue over time? Here’s an example if you got an average interest rate of 5%.

As you can see, the accrued debt over 20 years compounds nearly triple the original balance. Those figures will lead prospective borrowers to ask if there’s any way to minimise the rolling interest if they can’t get the lowest rates.

What Can I Do To Minimise Interest on a Lifetime Mortgage?

Many providers now offer different types to address the concerns of rolling interest. Every standard lifetime mortgage plan will have a no negative equity guarantee (debt can’t be more than the value of your home). However, many borrowers will want something left over from selling their property.

Below are the types of lifetime mortgages that can potentially reduce the interest paid on your original balance.

Drawdown Lifetime Mortgages

Drawdown lifetime mortgages offer a way for borrowers to reduce interest by creating a drawdown facility on your equity release. You won’t receive your cash all at once but rather in an initial sum, with the rest stored in an account held by the lender.

You can withdraw funds whenever you wish, and you’ll only get charged interest on the amount you take out. Thus, you can prospectively reduce the interest accrued by only taking out what you need.

Interest-Only Lifetime Mortgages

Interest-only lifetime mortgages are a flexible option for those who want to minimise the interest at the end of their contract. The plan allows borrowers to pay off the accrued interest monthly in full or partially, so the final balance will be significantly less than a rolling scheme.

Voluntary Repayments

Other lenders will offer plans that omit the typical early repayment charges (ERC) and allow flexible repayment of the loan. You can make ad-hoc monthly payments towards the lifetime mortgage, reducing the final balance to get repaid after your property’s sale.

You’ll likely be able to pay up to 15% of the lump sum borrowed annually. However, the terms can vary between providers and should get discussed with an equity release specialist should this plan be of interest.

So finally, with all the options available, you might wonder what kind of rate you’ll get for your lifetime mortgage.

What Interest Rate Will I Get on My Lifetime Mortgage?

Equity release plans are an excellent way to secure financial futures and provide an income for retirement. However, it’s essential to understand how the interest rates can affect the amount you borrow and what you’ll have to repay upon the contract’s end.

You can use a lifetime mortgage calculator here to gauge an idea of what kind of rate you’ll get for the plan. The tool takes your age, location, property value, and existing mortgage into account to give a more definitive answer of interest rate and what you’ll pay.

However, as mentioned, connecting to an equity release specialist is the best way to discover tailor-made lifetime mortgage plans. You can use this platform to engage with an expert quickly and learn about the options that would most benefit your circumstances.