We all know interest rates have been rising, but how is this translating to equity release prices and how will customers be impacted? Our equity release expert, Mark Gregory, helps a reader pondering these very questions…
The Question
I would like to learn a bit more about equity release interest rates please. Do providers offer fixed and variable rates and have they been rising lately in line with Bank of England increases?
I am considering releasing equity from my home, but I am concerned about locking into a deal when rates are high. I wondered if there was an option to choose a rate for a shorter term and then switch or if I should hold off until rates fall again. Thanks for your help.
Mark’s Answer
Your question is the topic of many conversations here at Equity Release Supermarket as we have seen a recent increase in interest rates, and they remain high in comparison to what we have been accustomed to for many years now.
I am not an economist, so I’m unable to predict what will happen to interest rates, and whether higher interest rates are here to stay for the foreseeable future. However, I can confirm that a Lifetime Mortgage offers a fixed rate of interest for life.
The amount you can borrow is based on your age and the value of your home, and the loan is not stress tested against your income to understand if you can make contractual payments.
In theory, you could borrow up to 55% of the value of your home depending on your age, and depending on how much capital you need. One of our expert, independent advisers will provide you with exact figures with no obligation.
For example, if you wanted to apply for a flexible Lifetime mortgage, you would receive a fixed interest rate for the full term of your loan, and for many customers this is reassuring as they will know exactly how much they will owe, with each and every year that they retain the loan.
Some of the flexible features that Lifetime mortgages have include making partial, full or ad hoc payments to manage the interest being added, and some customers choose not to make any payments at all.
Some plans have an inheritance protection guarantee feature, where customers ringfence some of the equity in their home for their beneficiaries. Furthermore, some plans have early repayment charges for five, eight, 10 and 15 years, so it may be possible to remortgage your loan in the future depending on how much you owe, and if there are plans with better terms available at that time.
Another option could be that you borrow a small amount of capital initially, and then drawdown funds in the future when you need additional capital.
The initial lump sum will attract a fixed rate and future capital that you access will be at the prevailing interest rate at that time which could be higher or lower than today’s interest rates.
As noted, it is unclear what the future holds for interest rates, but when it comes to borrowing capital it is important to understand your options in the short, medium, and long-term. One of our friendly expert advisers will be able to provide you with bespoke information to show you what the effect of the interest rate will be, and they will be able to provide you with tools to help you manage payments demonstrating the benefits to your estate of doing so.
Furthermore, they will confirm what early repayment charges apply to your borrowing, and they will provide you with a bespoke illustration ensuring you have all the information you require before making an informed decision whether to proceed, without obligation or being charged.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
