Lifetime mortgage interest rates
The Equity Release Council is the industry body that sets the standards for lifetime mortgages. According to the Council's rules, the interest rate charged must be fixed or, if it is variable, there must be a fixed upper limit (known as a cap) that lasts for the life of the loan.
Interest rates on lifetime mortgages are higher than on a standard mortgage because the lender has less certainty on exactly when they will be repaid.
Currently, lifetime mortgage interest rates are at their lowest ever. For example, Age Partnership has deals from 2.75% AER fixed for life when you use this equity release calculator to find out how much you could release.
With a drawdown lifetime mortgage, each cash withdrawal will be charged at the current interest rate, which might be higher or lower than the rate when you first arranged your plan.
Compare lifetime mortgage interest rates.
Lifetime mortgage costs
The cost of setting up a lifetime mortgage is around £2,000 to £3,000, which usually includes:
- A fee to the equity release adviser
- The lender’s arrangement fee
- Solicitor costs for independent legal advice
- The valuation of your property
Some lifetime mortgage deals may include lender and valuation fees, alternatively these costs can be added to the loan amount.
Your equity release adviser will ensure you understand all the costs involved and work out what the right solution is for you over the longer term. For example, higher set up costs and a lower interest rate may work out cheaper in the long run.
Lifetime mortgages and inheritance
With a lifetime mortgage, you are using some of the value in your home as a security for the money you borrow. This will reduce the amount you will be leaving your children or grandchildren, but there are ways to safeguard some of their inheritance.
- Choose inheritance protection: this option lets you secure a proportion of your home’s value for your heirs, by reducing the amount of money you can receive from your lifetime mortgage. You decide how much you want to protect when you apply.
- Make voluntary repayments: you could choose to repay some or all of the interest on the loan and even some of the capital to reduce the total loan and leave more for your family to inherit.
- Give a living inheritance: you could give some of the money you release to your children or grandchildren now, rather than waiting. Giving money in this way can also reduce the inheritance tax payable on your estate, although this will depend on HMRC time limits for lifetime gifts.
Hopefully your home will increase in value over the years, as this will also help reduce the impact of loan repayment on your estate.