Lifetime mortgage rates: how they're set and how to compare them

If you're researching lifetime mortgage rates, you've probably noticed that no two websites quote the same figure. That's because lifetime mortgage rates are personalised rather than published as a single market rate - your age, your property's value, your health, and the specific plan you choose all move the number up or down.

What we can tell you is how the mechanics work. Lifetime mortgages, the most common form of equity release explained in plain terms, let you borrow against the value of your home without selling it. Instead of monthly repayments, the interest is added to the loan and compounds over time (unless you choose to make optional repayments), with the full amount typically repaid when you die or move into long-term care.

Equity release is a lifetime commitment. It reduces the value of your estate and may affect your entitlement to means-tested benefits, so it's worth taking the time to understand how a rate would apply to your circumstances before deciding to go ahead.

Rather than quoting rate figures that can be outdated within weeks, the table below compares plan types and notable features from some of the UK's most established lifetime mortgage providers. All are members of the Equity Release Council, the industry body whose product standards include a no-negative-equity guarantee - meaning neither you nor your estate will ever owe more than your home is worth, even if the debt has grown beyond the property's value by the time it's repaid.

Product availability and features change regularly, and not every plan is available at every property value or borrowing level. Speak to an advisor to see which of these lenders, or others we compare, currently suit your circumstances.

MER (Monthly Equivalent Rate) is the rate a lender applies each month when calculating that month's interest. AER (Annual Equivalent Rate) shows what that monthly rate works out to over a full year, once monthly compounding is factored in.

Because most lifetime mortgages compound interest monthly, the AER on a plan is always higher than its MER. A lender might quote the MER because it looks like a smaller number, but the AER gives you the more accurate picture of the true annual cost of borrowing. When comparing plans, ask your advisor for both figures, and pay closer attention to the AER.

Why this matters when comparing plans

Two lenders can advertise similar-looking rates, but if one compounds interest monthly and quotes the MER while the other quotes an AER, they aren't directly comparable at face value. Always compare like for like, or let an advisor make the comparison on your behalf.

Your lifetime mortgage rate is calculated from several factors specific to you and your property, rather than a single market-wide number. The main ones are:

• Age - older applicants are often offered a lower rate on some plans, as the lender's expected exposure period is generally shorter
• Property value and borrowing level - borrowing a smaller percentage of your home's value can improve the rate you're offered
• Health and lifestyle - certain medical conditions or lifestyle factors can qualify you for an enhanced rate
• Plan type - lump sum and drawdown plans can be priced differently, and drawdown plans typically only charge interest on funds you've actually withdrawn
• Optional features - add-ons like voluntary repayments or downsizing protection can affect the rate a lender offers
• Lender and product tier - each lender prices its own range of products differently, which is why comparing across a wide range of lenders matters
• Property type and construction - non-standard construction, leasehold flats, or properties in poor condition can affect both the rate and whether a lender will lend at all

Enhanced (sometimes called impaired-life) lifetime mortgages take your health and lifestyle into account when calculating your rate. If you disclose certain medical conditions or lifestyle factors, some lenders will offer a lower rate than their standard rate, because your statistically shorter life expectancy reduces the lender's expected exposure period.

This is one of the most overlooked ways to reduce the cost of a lifetime mortgage. Many people assume enhanced rates only apply to serious or terminal illness, but a wide range of common conditions and lifestyle factors can qualify.

Most lifetime mortgages don't require monthly repayments, so unless you choose to make optional payments, interest is added to your loan instead of being paid off. The following year, interest is then calculated on the new, larger balance - the amount you originally released, plus all the interest added so far, not just the amount you originally borrowed.

This is why the debt on a lifetime mortgage can grow considerably faster in later years than in the early years if no repayments are made at all. The formula lenders use is straightforward:

Total owed = amount released × (1 + your fixed rate) raised to the power of the number of years, where your fixed rate is set individually when you take out the plan.

Because the actual total depends entirely on your personal rate and how long the loan runs, the only way to see real figures for your situation is to use our equity release calculator or ask an advisor for a personalised illustration.

You can't negotiate your rate directly in the way you might haggle on other purchases, but several choices can reduce how much interest builds up over the life of your plan:

1. Make voluntary repayments - many plans let you pay off some interest, or a portion of the capital, each month if you choose to. This slows compounding considerably over time.
2. Choose drawdown instead of a lump sum - with a drawdown plan, you only pay interest on the money you've actually withdrawn, not on your full agreed reserve, which can significantly reduce the total interest that builds up.
3. Ask about enhanced rates - disclosing relevant health and lifestyle factors could qualify you for a lower rate than the standard offering.
4. Consider a lower-feature plan - optional add-ons like inheritance protection or downsizing protection can affect the rate; a simpler plan may come with a lower rate if those features aren't a priority for you.
5. Compare timing and market conditions - rates across the market move with the wider interest rate environment, so the timing of your application, and comparing multiple lenders at that time, can make a difference.

If you do opt for a plan with voluntary or partial repayments, remember that it remains a mortgage secured against your home. Your home may be repossessed if you do not keep up repayments on this or any other loan secured against it, so check with your advisor whether the repayments on your chosen plan are genuinely optional or become contractually binding once you start making them.

Releasing equity can affect your entitlement to means-tested benefits, including pension credit, council tax reduction, and universal credit. Most means-tested benefits have a capital threshold - currently £16,000 in savings and other capital - above which your entitlement can be reduced or stopped altogether. Taking a large lump sum can push you over that threshold even if you don't spend it straight away.

A drawdown plan can help manage this risk, because you only release funds as you need them rather than taking the full amount upfront. That said, every situation is different, and the impact depends on which benefits you currently receive and how much you plan to release.

Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. If you're not sure how releasing equity could affect what you currently receive, get free and impartial guidance from MoneyHelper before you go ahead, at moneyhelper.org.uk or by calling 0800 138 7777.

If you repay your lifetime mortgage early, whether by choice, because you're moving home, or because your circumstances change, most plans apply an early repayment charge (ERC). There are two common structures:

• Fixed ERCs - a set charge that typically reduces the longer you've held the plan, often disappearing entirely after a set number of years.
• Gilt-linked ERCs - calculated against movements in government bond (gilt) yields since you took out the plan. These can be considerably higher than a fixed structure if gilt yields have fallen since you started your plan, which makes them harder to predict in advance.

Most Equity Release Council-approved plans also let you make penalty-free partial repayments each year, up to a set percentage of the original loan, which can help manage the size of your ERC. Some plans also include downsizing protection, which waives the ERC if you move to a smaller property the lender doesn't consider suitable for the plan. If there's any chance you might move or downsize within the next several years, ask your advisor to check the ERC structure carefully before you commit, and compare it against plans with more flexible terms.

A lifetime mortgage isn't the only way to access money later in life, and it won't suit everyone. If you'd rather sell a share of your property than borrow against it, home reversion plans work differently and are worth comparing. If you might still meet standard affordability requirements, a remortgage for over 60s, including retirement interest-only options, could suit your circumstances better and may cost less over time. Speak to an advisor to compare all your options side by side before deciding.

If a lifetime mortgage is the right fit, here's what comparing rates through Money Saving Advisors involves: