We want to make equity release as simple as possible. So we’ve created this handy jargon buster to make things clearer for you.
Understanding the terms you should know
When exploring the world of equity release you’d be excused for wondering what some of the terms and phrases mean. It’s a big decision, requiring careful consideration, so it’s important to understand what you are committing to. That’s why we’ve put together this handy glossary to help you.
- Stands for Annual Percentage Rate also referred to as the Effective APR. The annual interest rate payable on a loan.
- The money you pay to your provider to cover the various administration costs involved in releasing the equity from your home.
- The person or people you nominate to receive the proceeds of your estate when you die.
- Interest accrued on a lifetime mortgage that is added to the loan amount and then future interest is charged on top. In other words, interest paid on interest. See also Lifetime Mortgage.
- Selling your home and buying another property (typically smaller) of lesser value to live in.
Drawdown lifetime mortgage
- An equity release mortgage with the facility to draw money out as and when you need it, up to an agreed limit. Interest is only charged on the loan when money is released to you.
Early repayment charge
- A fee required by a provider if you pay off a lifetime mortgage early.
- The market value of your house, minus any outstanding mortgage debt and other loans secured on it. If you own your home outright, then 100% of the equity is yours.
- A financial arrangement that allows you to benefit from the value of your home whilst continuing to live in it, either by borrowing against it or selling all or part of it, for a cash lump sum or a regular income. See also Home Reversion Plan and Lifetime Mortgage.
Equity Release Council (ERC)
- The industry body that represents providers, qualified advisers, lawyers, intermediaries and surveyors who work in the sector. Members must adhere to the Council's Statement of Principles which puts in place safeguards and guarantees for you.
- Everything you own (e.g. property, investments and possessions) when you die less any money you owe.
Financial Conduct Authority (FCA)
- The independent body responsible for regulating the conduct of financial services firms and markets in the UK, to ensure consumers get a fair deal. The Financial Conduct Authority is the conduct regulator for 56,000 financial services firms and financial markets in the UK and the prudential regulator for over 18,000 of those firms.
- Outright ownership of a property including the land it’s built on. See also Leasehold.
Home Reversion Plan
- A scheme that enables you to sell part, or all of your home to a provider at a reduced price in exchange for a tax-free cash lump sum. Ownership of your home passes to the provider, but you can continue to live there for the rest of your life, rent free.
- When the provider allows more equity to be released from your home if you have health problems.
- Receiving money on a regular basis rather than as a one-off lump sum. See also Lump sum.
Inheritance protection guarantee
- A feature that allows you to protect a portion of your home's value so you can guarantee an inheritance for your loved ones.
- A scheme that includes another person living with you, such as your spouse. Should one of you die or go into care, the other person can continue to live in your home until they die or move out permanently.
Key Facts Illustration
- Ownership of the property and its land for the duration of a lease agreement with the freeholder. At the end of the lease, ownership returns to the freeholder. See also Freehold.
- Legal authority to stay in your home rent-free for the rest of your life or until you permanently move in to long-term care. See also Home Reversion Plan.
- A lifetime mortgage is a loan secured on your home, which is repaid with interest, when you die or go into long-term care. You maintain ownership of the property and continue to live there. See also Compound interest.
Loan to value (LTV)
- This is the size of your mortgage in relation to the value of your property. It is usually shown as the percentage of your home that is mortgaged (e.g. 60%), with the balance being the percentage of the property that you own outright (e.g. 40%).
- Taking a one-off cash amount upfront rather than receiving a regular income. See also Income.
- When the value of a property is less than the debts owed on it.
No-negative equity guarantee
- An assurance that neither you nor your beneficiaries will ever owe more than the value of your home. All ERC members must honour this guarantee. See also Equity Release Council.
- The right to transfer a scheme to a new home provided the new property is acceptable to your provider. All ERC members must include this feature in the schemes they offer. See also Equity Release Council.
- A quotation presented in the format required by the Financial Conduct Authority (FCA) to aid customer understanding. Also referred to as a Key Facts Illustration.
- A way of borrowing money using an asset, such as your home, as a guarantee. If you don’t keep up repayments, the lender can repossess this asset and sell it to get their money back.
- A qualified legal professional engaged to provide legal advice and support to clients. When arranging the release of equity from your home, a solicitor can be engaged to review contractual arrangements and prepare any legal documentation required.
- The money you pay to your solicitor for providing legal services.
- The money you release from your home is free of both Capital Gains Tax and Income Tax.
- The formal assessment of a property’s value based on its condition and the current housing market, usually carried out by a surveyor on the provider’s behalf.
We hope this glossary helps make equity release a little clearer and sheds light on some of the jargon you may come across when considering your options.