Equity release interest rates
Getting the lowest Equity Release interest rate might not always mean it’s the best deal for your unique situation. This guide helps you understand the nuances of interest rates on these long-term loans.
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Updated: July 21st, 2025
However, if you browse the market, you’ll notice quite a difference in rates between various providers and schemes.
What are typical Equity Release interest rates?
Equity Release interest rates are usually fixed or sometimes capped for the lifetime of the loan. Typical rates can range anywhere between 5% and 6.5%.
However, there isn’t a single “best” Equity Release interest rate that applies to everyone. Each application is different, and various factors mean that what’s suitable for one person may not be for another. So, someone else getting a favourable rate doesn’t necessarily mean you will, too.
A lower headline rate might seem appealing, but it’s crucial to understand that each product comes with specific conditions and benefits that affect the true cost over the long run.
The long-term impact of Equity Release interest
A key consideration for Equity Release is how interest accrues. Unless you choose to make repayments, interest is charged not only on the initial loan amount but also on any interest that has already accumulated – this is known as compound interest. This means the total amount owed can grow significantly over time.
For example: If you borrowed £25,000 aged 60 at 6%, the amount you owe would approximately double every 12 years. So, by age 72, you could owe around £50,000, and by age 84, approximately £100,000. Understanding this long-term growth is vital when thinking about Equity Release interest rates.
Equity Release providers used to impose strict repayment charges. Now, however, many have responded to customer needs and are more flexible.
There are ways to have more control over your loan, and how much remains payable when it is due. If you find the right lender, some will let you pay back 10% annually without a penalty.
Furthermore, regarding early repayment, many higher interest schemes feature a simple fixed repayment charge. Some will only charge you a certain percentage during certain time periods.
For example, they might impose a 5% charge to repay the loan within the first five years. This will then change to 3% during the following three years and no charge thereafter. This means if you wanted to repay the loan after 8 years, you could do so without charge, instead of being locked in.
If you want to take out sums in smaller stages, then you might want to go for a deal with a higher rate. Remember, with ‘drawdown’ schemes, you only pay interest on the amount you withdraw.
This is a case of the provider striking a balance. Many drawdown schemes with a low interest rate will stipulate a high minimum withdrawal, so you would, perhaps, take larger sums less often.
Some schemes with a higher interest rate will allow you to take as little as £2,000 at a time. This could help you stay under a savings limit to remain eligible for means-tested benefits.
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What influences your Equity Release interest rate?
The interest rate you are offered on an Equity Release plan will vary according to several factors unique to your circumstances and the lender’s criteria:
- The size of the loan: Generally, the percentage of your property’s value you wish to release can influence the rate.
- The value of your house: Your property’s current valuation plays a significant role.
- Your location: In some cases, your geographical location can affect the rates available.
- Your age: While not a direct influence on the rate itself, your age (and the age of the youngest applicant for joint plans) affects how much you can borrow, which can indirectly impact the rates offered.
- Product features: Schemes offering additional benefits may come with different rates.
- Medical underwriting: For lifetime mortgages, some providers offer ‘enhanced’ rates or higher loan amounts if you have certain health conditions or lifestyle factors that affect life expectancy.
Beyond the rate: What other features affect the true cost?
Focusing solely on the lowest equity release interest rate can be misleading. Equity Release schemes often come with different benefits and features, and understanding these can save you money or provide greater value in the long run. As interest rates rise, providers might offer more incentives. These could include:
- Free property valuation: Saving you money upfront.
- Free or very low application fees: Reducing initial costs.
- Cashback options: Sometimes a percentage of the loan amount.
- Downsizing protection: Allowing you to repay the loan without an Early Repayment Charge (ERC) if you move to a smaller, more suitable property later in life.
- Inheritance protection: Enabling you to ring-fence a portion of your property’s value to leave as inheritance.
- Medical underwriting options: Potentially offering better terms based on health.
- Flexible repayment options: Such as allowing voluntary partial repayments to manage the total interest accumulated.
- Lower withdrawal increments: For drawdown plans, only paying interest on the funds you’ve actually drawn down.
Depending on your long-term plans, a product with a slightly higher equity release interest rate but better features might offer more overall value. For instance, a 6.24% rate might seem higher, but if the lender offers a more favourable loan-to-value ratio or excellent drawdown flexibility, it could be a better fit for you.
Making your Equity Release decision
Understanding Equity Release interest rates and the various factors that influence them is a crucial step. However, navigating the numerous schemes and their varying conditions can be complex.
Discuss your plans and understand what equity release interest rates might be available for your unique circumstances, reach out today. Our team can connect you with expert advisors for a free, no-obligation consultation.
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FAQs: Getting the best equity release interest rates
There are a variety of costs involved when looking to take out an Equity Release plan:
- Valuation fees
- Arrangement fees
- Solicitors’ fees
- Consultation fees (certain brokers offer these – we don’t!)
- Interest rates
If you want a more detailed insight into the costs of Equity Release, you can read our in-depth guide.
The capital released from your property is not taxed, making it an effective way to raise capital. This is because it’s technically not income, and, as you’re borrowing, you don’t pay capital gains tax.
Are you looking to release equity from your property? Reach out today and we will pair you with one of our expert advisors. They can answer any questions you have during a free no-obligation consultation.
A drawdown scheme is where you are able to draw upon funds as and when needed. Typically, a pre approved facility is agreed that you are then free to drawdown against. Compound interest is then only applied on the amount drawn.
About the author
Phil Scott: Director
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
Qualifications:
- Financial Planning Certificate: 1, 2 & 3 | Year Attained: 1992
- Certificate in Mortgage Advice and Practice (CEMAP) | Year Attained: 2001
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