Equity release jargon buster

Equity release jargon buster

If you’re aged 55+ and looking to access some of your property wealth, equity release could be the ideal way to boost your finances.

Whilst researching the topic to understand what’s involved, you may come across one or two words or phrases that you aren’t familiar with. Here you’ll find our handy equity release jargon buster to explain some of the most commonly used terms.

After having a read through our equity release jargon buster, why not give our friendly team a call? They’ll answer any initial questions you might have and can book you a telephone appointment with an equity release specialist if you’d like to find out more. Talk to one of our equity release consultants by calling 0808 178 3055 or request a call back.

A

Additional advance – A further lump sum of money taken from the cash held in reserve when a drawdown lifetime mortgage has been arranged.

APR – The annual rate you are charged for borrowing, representing the actual yearly cost of the loan expressed as a percentage. For example, if you had £1,000 on a credit card with an APR of 19%, you would owe around £190 in interest by the end of that year.

B

Beneficiary – A person, charity or other recipient intended to receive money or gifts from an individual, usually through a will, trust or life insurance policy.

C

Cash facility – An amount of money offered to you when a drawdown lifetime mortgage is arranged, from which you take your initial advance. You can apply to take additional advances if and when needed. 

Compound interest – The addition of interest to the amount that is borrowed via a lifetime mortgage. Interest accrues on the original loan amount plus any previously accrued interest. The rate can compound on a daily, weekly, monthly, quarterly, half-yearly or yearly basis. Also known as roll-up interest.

D

Downsizing – When a person sells their home and moves to a smaller or less expensive property to access their equity. 

Drawdown – A type of lifetime mortgage that enables you to release an initial cash lump sum followed by smaller amounts as and when you need them, rather than taking the whole reserve in one go. As interest is only applied to the amount you have ‘drawn down’ from your reserve, this option reduces your interest costs compared to a single lump sum plan.

Drawdown reserve – An amount of equity in your home that is offered and held in reserve with a drawdown lifetime mortgage for you to access as and when you need it.

E

Early repayment charge – A fee that may be charged if you pay off all or some of your lifetime mortgage early (dependent upon plan and provider).

Enhanced terms – Enables you to access a bigger cash release or preferential interest rates on an enhanced lifetime mortgage if you have a qualifying health condition or lifestyle factor.

Equity – The market value of your property, once any outstanding loans or mortgages secured against the property have been deducted.

Equity Release Council – The industry body for equity release. Their members must agree to abide by the Council rules and agree to their Standards, which offer important protection for equity release customers.

Estate – Everything that falls under your ownership, including your home and other properties, your savings, other finances and your possessions. Your estate is what is left to your beneficiaries when you pass away.

F

Financial Conduct Authority (FCA) –  The FCA is the UK’s independent body which regulates the conduct and activities of Financial Services companies.

Home reversion – A type of equity release plan where you sell all or part of your property to a home reversion provider in exchange for a cash lump sum. You then live in your home rent-free for the rest of your life or until you move into long-term care.

I

Inheritance protection guarantee – A plan feature which enables you to ring fence a percentage of your home’s future value. This equity cannot be eroded by future interest on your plan, thus guaranteeing an inheritance for your loved ones. 

Inheritance tax – The tax applied to the estate when a person passes away. Currently, there is no inheritance tax to pay if your estate is less than £325,000. Anything over that amount is taxed at 40%. If you leave your estate to your spouse/civil partner, your tax-free allowance is added to their own, so they would have a tax-free allowance of £650,000 upon their death. 

Initial advance – The first payment made from an equity release plan, usually when a larger cash facility has been reserved for use in the future.

J

Joint borrower – A joint equity release plan means that you and your partner are entitled to remain in your home until you have both passed away or moved into long-term care.

K

Key Facts Illustration (KFI) – A document laid out in a set format which is provided during the advice process.  It covers all the features and risks of the equity release plan being considered.

L

Leasehold – When the ownership of a property must return to the landlord (sometimes known as ‘freeholder’) after a set period of time.

Lifetime mortgage – A type of equity release plan for homeowners aged 55 or over. A lifetime mortgage is a loan secured against your home which enables you to access some of your property wealth without having to sell or move home. The loan is repaid once your house is sold, typically when you pass away or move into long-term care. 

Loan to value (LTV) – The maximum percentage of your property value that is available to access with an equity release plan. This is usually based on factors including your age, health and lifestyle.

Long-term care – When a person has to move out of their home so that they can receive care on a permanent basis.

Lump sum – An amount of money a person can release in a single payment.

M

Means-tested benefits – Benefit payments where the money paid out is dependent on your income and how much capital you have.

N

No negative equity guarantee – All plans approved by the Equity Release Council must adhere to the standard that their customers will never owe more than the value of their home. Irrespective of how much interest accrues on your plan during your lifetime, your beneficiaries will never inherit any debts from your equity release plan.

P

Payment holiday – A pre-approved break from making repayments on your equity release loan, if you have selected an interest-only lifetime mortgage.

Portable – Plans approved by the Equity Release Council allow you to move your plan to another property without penalty if you decide to move house (subject to your new property meeting the provider’s lending criteria). 

Provider – The company that provides and finances your equity release plan, usually arranged through your equity release adviser.

R

Roll-up interest – Another name for ‘compound interest’, the addition of interest to the amount that is borrowed via a lifetime mortgage. Interest accrues on the original loan amount plus any previously accrued interest. The rate can compound on a daily, weekly, monthly, quarterly, half-yearly or yearly basis.

S

Secured loan – A loan that is secured by the lender against an asset you own, usually your home, that enables the lender to recover any outstanding debts if you cannot pay back the loan.

U

Unused cash facility – The amount of funds available in your cash reserve with a drawdown lifetime mortgage to take additional advances from as and when you need them, once you have taken your initial advance.

Ready to take the next step?

If you still have some questions after reading through our equity release jargon buster, or you want to talk to someone about unlocking some of your equity, then speak to our team of friendly consultants at Equity Release Wise today. Call now on 0808 178 3055 or request a call back and we’ll call when it’s convenient for you.