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How Do Equity Release Interest Rates Work?

Money Savings Advice Equity Release interest rates

If you’re new to equity release, there’s more to think about than a lower percentage number, but understand interest rates is one vital element of understanding how equity release works and how it can benefit you if you meet the eligibility criteria.

How Do Equity Release Interest Rates Work?

Equity release interest is added onto the amount you borrowed each year and compounds. A ‘no negative equity’ guarantee ensures that you won’t owe more than the total value of your home no matter how long you live.

Equity release interest rates have fallen to their lowest ever levels in 2020, with the best rate now less than 3% and the average below 5%.

Read on to learn how equity release works, and what you need to be aware of when you apply.

Looking for other information on Equity Release? This guide has info on ‘Equity Release interest rates explained’ We have also writen extensively about:

We update all our guides regularly. If you are researching Equity Release and we haven’t got an exact guide that helps you, keep coming back as we update daily.


How Does Interest Work With Equity Release?

When you take out a lifetime mortgage through equity release, you’ll be given a cash lump sum that you won’t need to make immediate repayments on. Instead, you’ll be asked to repay it from your estate either when you go into full-time care, or when you pass away.

In the short term, this might be great – you get the money you need and you don’t have to worry about paying it back. But if you want to pass on inheritance to your family, then you could be leaving them with little.

That’s because, while you don’t need to make immediate repayments, interest is building up on that cash amount. And it’s compounding too (compound interest explained) – so every year you’re owning more and more. If you live a long and prosperous life well into your 80s, 90s or beyond, you could end up owing a significant amount more than you borrowed – maybe three or four times the original amount.


According to the Equity Release Council 37,000+ people used Equity Release schemes in 2018, releasing over £3.06bn from their properties.

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How to Avoid High Interest With Equity Release?

There are a number of ways you can avoid building up a huge interest bill when it’s time for your loan to be repaid. The first is to delay your equity release application (we have written extensively about the age to apply for Equity Release). The longer you have the money, the more time you’ll be building up that interest. If you reach 55 but don’t need it, consider waiting. Many customers prefer to wait until they’re in their 70s or 80s before taking out an equity release loan.

Another option is a drawdown mortgage. Instead of gifting you a large cash sum immediately, this would instead give you almost a ‘credit’ amount that you can draw down from. So, say your equity release loan grants you £80,000 – instead of taking that full amount upfront, and earning interest on it straight away, you may only choose to take £20,000. You’d then only be building interest on that £20,000 until you decided you needed more.

Finally, some equity release plans will let you make interest repayments if you wish. If you feel you can afford it, then making repayments can ensure it doesn’t compound, and it means that when you do pass away your estate is only liable for the cost of the original loan value.



Best Equity Release Rates

The best equity release interest rates now are just under 3%, but this will only apply to certain age brackets and to lower loan-to-value amounts. The more money you want to borrow, the higher the interest rate will be. The average is still lower than it’s ever been at around 4.5%, which is why more people than ever are taking equity release loans.

We’ve got more guides that talk you through the pros and cons, the impact to benefits and more.

Quick Equity Release FAQs


Home reversion plans are, in essence, a means of selling a share in your property to an investor, in exchange for payment. There are no repayments, with the investor receiving their share of proceeds when the property is eventually sold.

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The Equity Release Council is the industry body which represents equity release providers, qualified financial advisers, solicitors and intermediaries. Equity release is a growing sector, especially for older homeowners who may have limited access to finance.

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You need to be at least 55 years old to apply for equity release in the UK. If you are planning to make a joint application, this applies to both of you.

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Equity release drawdown works by giving you the value of your loan as a pot that you can make withdrawals from. You’ll only pay interest on the money you decide to withdraw.

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Equity Release enables you to release cash from your property. There are two option, a drawdown lifetime mortgage is allowing you to release the money monthly or a Lifetime mortgage Lump Sum which pays the released cash in one payment to your account.

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How Can Money Savings Advice Help You With Releasing Equity?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Len Burgess

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

Len Burgess

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

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