Although interest rates are variable or capped, there is a surprising variance between the rates quoted by each provider. On the surface, it seems easy to go for the Equity Release scheme that promises the lowest rate, but will it really give the best value for money? And will your property even be eligible?
If allowing for a short-term loan, then you might prefer to pay fewer fees upfront in return for a higher interest rate. If going for long term, you might prefer to pay more upfront costs for a scheme that offers a lower rate over a longer period.
What you should look at with Equity Release interest rates
Generally, as the interest rate rises, lenders will offer more upfront incentives like:
- Free property valuation
- Free or very low application fees
- Cashback option – sometimes 2%, or up to £1000
- Downsizing protection
- Inheritance protection
- Medical underwriting option
You might be able to get a 4% interest rate or lower, but will the provider still offer that extra option? A 6.24% rate might sound high, but what if they guarantee a higher value-to-loan ratio and a 15-year drawdown period?
Other incentives that could influence your decision on an Equity Release product
You may want some control over how much of the loan remains repayable. Lenders used to have strict charges for repayment, but many now are more flexible, and some offer 10% repayment annually without penalty.
More favourable repayment charges
Also on the subject of early repayment, many products with a slightly higher interest rate now offer a fixed repayment charge, or repayment charges only within certain time periods (e.g. 5% charge within first five years, 3% during the following three years, and then no charge thereafter). This might make it a lot more attractive if you think you could pay back the loan within only a few years.
Lower Withdrawal Increments
With drawdown schemes, some lenders might stipulate a high minimum withdrawal, while others may offer the option to take out as little as £2000 at a time. Each option will be reflected in the interest rate – a lower rate for enforcing a higher withdrawal; a higher rate for allowing you to release in slower, smaller amounts.
The availability of favourable interest rates will also vary according to the size of the loan, the value of your house, and also, in some cases, your location.
How we make your decision easier
There are quite a few variables for us to check and balance when looking into your Equity Release scheme. However, your decision will mainly depend on how long you expect the life of the loan to be, and how much you need, spread over what period of time. These are the key factors that affect the interest rates and charges.
We can’t pretend that it’s a simple decision, but at Premier our job is to understand how you need to use your money and when. We’ll be the ones getting the calculators out on your behalf to check which interest rates, balanced against the available incentives, will work best for you. Then we’ll give you a run-down of our findings and the reasons for recommending particular Equity Release schemes.
As members of the Equity Release Council, our priority is to put your interests first and give you confidence that you are being treated fairly at every step. Because we’ve got relatives too, who are just like you, and we wouldn’t want them to be let down either.