By 
Older homeowners can now release cash from their property more cheaply than ever before, as rates on equity release mortgages have fallen to a new low.
Two providers now offer loans with an interest rate of 2.55pc. Industry experts said this was the lowest rate ever offered for an equity release mortgage.
The sector has boomed in recent years as older homeowners have looked to cash in on properties that have risen in value substantially over the decades. This money is often used to fund retirement costs, but in other instances has been used to pass on wealth to family or to pay for holidays or home improvements.
However, many homeowners have incurred large debts because of the compounded way interest is charged on equity release loans. As a result, debts can grow very quickly.
This makes securing a low interest rate even more important.
More 2 Life and Pure Retirement now both offer a 2.55pc rate to homeowners aged 55 and over. Based on the average house price of £234,742, it would take around 27 years for the entire value of the house to be whittled away by interest charges, assuming no house price growth.
However, the low rates offered on new plans are of little consolation to homeowners already locked into expensive equity release agreements. One a plan is taken out, the rate is fixed. Telegraph Money has previously reported that pensioners have been asked to pay six-figure penalties for making changes to their plans, with some being charged rates of 7pc or higher.
Money Newsletter REFERRAL (Article)
Aaron Strutt of Trinity Financial, a mortgage broker, said: “The biggest equity release providers have been busy undercutting each other to offer the best deals in recent months and they have some super-cheap rates.”
Mr Strutt said that some lenders would allow borrowers to make payments each month so that the value of the property was not eroded over time. This meant equity release could be used more like a retirement interest-only mortgage, minimising the level of debt.
“The improvements to pricing and increased flexibility of the deals have moved equity release from being a last resort to a sensible consideration for many people in their retirement,” he added.
Reader Service: Try our free equity release calculator and see how much tax-free cash you could release from your property
Comments