How they work and what affects them · Updated 8 October 2026
This page is general information, not financial advice. Safe Haven Equity is an introducer service. Equity release is a major decision, and you should take advice from a qualified, FCA-regulated adviser before going ahead.
One of the first questions people ask about equity release is "what is the interest rate?" The honest answer is that there is no single rate. The rate you are offered is personal to you, and rates across the market move over time. This guide explains how interest works on a lifetime mortgage, what affects the rate you are offered, and how you can keep the cost down. It does not quote current rates, because they change often. A qualified adviser can tell you what is available today.
New to equity release? Start with our guide, What Is Equity Release?
With most lifetime mortgages you do not make monthly payments. Instead, the interest is added to the amount you owe. Next time interest is worked out, it is charged on the original loan plus the interest already added. This is called compound interest, or "roll-up", and it means the amount owed grows faster the longer the plan runs.
The table below shows how a loan could grow over time. It is an illustration only, using a rate of 6% a year (AER) chosen to keep the maths simple. It is not a quote and not a current rate.
| After | Interest left to roll up | Paying £1,500 a year towards it |
|---|---|---|
| Start | £50,000 | £50,000 |
| 5 years | £66,911 | £58,456 |
| 10 years | £89,542 | £69,771 |
| 15 years | £119,828 | £84,914 |
| 20 years | £160,357 | £105,178 |
Two things stand out. Left alone, the amount owed can roughly triple over 20 years at this rate. And even modest voluntary payments can make a big difference, which is why it is worth asking about them.
Plans that meet the Equity Release Council's standards must have an interest rate that is fixed for each release or, if it is variable, capped for the life of the loan. In practice, most lifetime mortgages today have a fixed rate. That means rises in the Bank of England base rate will not change the rate on money you have already borrowed.
If you choose a drawdown plan, each further amount you take is fixed at the rate available on the day you take it. So later withdrawals may come with a higher or lower rate than your first one.
You may see two rates quoted. The MER (monthly equivalent rate) is the rate charged each month, expressed as a yearly figure. The AER (annual equivalent rate) shows what that works out at over a full year once interest is added to interest. Because of compounding, the AER is always a little higher than the MER. When comparing plans, compare the AER, and compare like with like.
Lifetime mortgage rates are usually higher than standard residential mortgage rates. That is partly because there are normally no monthly repayments and the loan may run for many years. It is one reason why it is important to look at alternatives, such as downsizing or a retirement interest-only mortgage, with a qualified adviser before deciding.
On plans that meet Equity Release Council standards, the rate on a lifetime mortgage is fixed for each release, or if it is variable it must be capped for the life of the loan.
Rates depend on your age, how much you borrow compared with your home's value, your property, the type of plan and wider market conditions, so each offer is personal to you.
The MER is the monthly rate, shown as a yearly figure. The AER shows what the rate works out at over a full year once interest is added to interest, so it is the better figure to compare.
Often, yes. Plans that meet Equity Release Council standards let you make penalty-free voluntary payments, subject to lending criteria and limits. Borrowing only what you need, or using drawdown, can also help.
Usually, yes. Lifetime mortgage rates are typically higher than standard residential mortgage rates, which is one reason it is important to take advice and compare options.
Make a no-obligation enquiry and we will introduce you to a qualified adviser who can look at your own circumstances and today's rates.
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