Equity release rates have increased from an average of 3.95% at the start of 2021 to an average of 4.10% in March 2022.
What Does Equity Release Entail?
Equity release is a unique mortgage option for those who are 55 years and older. It allows you to take out a loan against the value of your estate – while you continue to live there rent-free. The loan is then repaid by your estate once you pass away or get moved to a full-time care facility.
There are to main equity release options, namely:
1. Lifetime Mortgage: If you’re 55 or older, you can have a loan approved against the full value of your main property. However, it still remains yours and you continue to live there until the end of your life, or until you move into a permanent care facility.
2. Home Reversion: If you’re 65 or older, you can sell a percentage of your property at a rate that’s lower than market value. This will give you immediate access to funds while allowing you to live out your life in your own home.
What is the Normal Interest Rate for Equity Release?
A normal interest rate for equity release was around 3.95%, based on information from the Equity Release Council in 2021. They found that, among the nearly 500 equity release firms in the UK, the lowest interest rate offered was 3.13% and the highest was 6.80%.
Is Equity Release on the Rise?
Equity release interest rates are currently on the rise, and it’s expected to continue along this trajectory until 2024. Interest rates were notoriously low in March 2021, but this has changed significantly since the start of 2022. Equity release products now hold an average interest rate of around 4.33%.
How Is Interest Calculated for Equity Release?
The interest on equity release is compounded monthly or annually, depending on what your contract stipulates. The interest is added to the initial loan amount and during the following month or year, the interest is calculated based on the new sum and added to it. This process then continues.
What is the Downside of Equity Release?
The downside of equity release is that you won’t receive compensation for the full value of your house. You will forfeit this so that you can access funds immediately and still be able to stay in your home until you pass away or move into a permanent care facility.
Equity release will also leave your loved ones with a smaller inheritance because your property, or part of your property, will belong to your loans provider after you die rather than being transferred to them.
Can Equity Release Be a Good Thing?
Equity release can be very beneficial to those who require an influx of liquidity. It will allow you to make renovations to your home, assist a loved one in need, pay for an at-home nurse, or settle a large debt that’s eating at your retirement fund.
It can also be used to pay for the holiday you’ve dreamed about since your youth, or for the car you desire to drive during your final years.
Curious To Know More?
Can you pay off equity release early?
You are allowed to pay off equity release early. However, this may defeat its purpose. The idea is to not have to worry about returning the loan amount because it will be settled by your estate after you’re gone. There may also be a charge for paying off the loan early.
Can I sell my house if I have equity release?
You can sell your house at any point and settle the loan amount with the proceeds. Alternatively, if you receive a lump sum, you can use this to settle the loan and end the equity release agreement on your home.
Is there a better alternative to equity release?
There are numerous alternatives to equity release, such as grants, state benefits, living a more affordable lifestyle, or asking friends and family for assistance.
What is the best age to take equity release?
You can start equity release when you turn 55 years old. However, nowadays, the average age of those who opt for this is 71. The older you are, the more favourable terms you will receive and you may qualify for a larger loan.
Equity release interest rates have increased over a short period of time, and this rise will continue for the foreseeable future. This means that you will benefit by starting the equity release process sooner rather than later so that you can secure a lower interest rate.
Make sure you shop around to find the best interest rate on your equity release deal, and try to stick to an interest rate of between 2% and 4%.