Equity Release Glossary

A

Advice. It is a legal requirement to have financial advice, from a suitably qualified person, before applying for an equity release plan. All advisers at Equity Release Supermarket are fully qualified and are members of the Equity Release Council. Find your local adviser here.

Advice fee. A broker may charge you a fee for the financial advice and support you receive through the equity release process. This can vary significantly. Find out more about equity release fees and charges.

Annual Percentage Rate (APR). Is an interest rate used to reflect the true cost of borrowing after taking into account the interest rate and other charges e.g. set up costs.

Application fee. A fee that some lenders charge when your lifetime mortgage application is submitted to them, which covers their set-up and legal costs. Many lenders currently offer their plans without an application fee as an incentive.

Arrangement fee. An alternative name some lenders use for an application fee which a lender or broker may charge.

B

Beneficiary. A person or entity that is legally entitled to receive money or other benefits from another individual or entity.

Broker. Equity Release Supermarket is a ‘broker’ of equity release and other later life lending financial services. That means we work with lenders from across the whole market to find the right solution for you. We are not tied to any one lender and are a wholly independent and impartial broker.

Buy-to-let lifetime mortgage. A specialist range of mortgages that allow you to borrow from the equity in a buy-to-let property or properties. Find out more about buy to let lifetime mortgages here.

C

Compound interest. The interest payable on a lifetime mortgage. Interest is charged on the amount borrowed (often annually). Then in the following year, interest is charged based on the amount borrowed plus the interest from the previous year. This continues until the plan is repaid. Find out more about compound interest here.

Consultation. The first meeting – over the telephone, face to face or video - with your Equity Release Supermarket adviser, which is free of charge. Your adviser will use this opportunity to find out more about you and your financial goals before progressing to offer you financial advice, if indeed equity release is right for you. Find out more about the equity release process here.

D

Downsizing. The term used for when a home is sold to move into a smaller, often cheaper property. This often frees up additional money to support you in retirement.

Downsizing early repayment charge protection. A feature of many lifetime mortgages whereby should you need to sell your home and move to another property, then provided the plan has been in place for the period of time stipulated by the lender - then the lifetime mortgage can be repaid and closed without penalty.

Drawdown lifetime mortgage. A popular type of equity release plan where an initial amount is borrowed from an overall cash facility provided by the lender. The remaining amount not taken is held as a ‘cash facility’ by the lender for you borrow, or ‘drawdown’ against at any time in the future. Find out more about drawdown lifetime mortgages here.

E

Early repayment charge. Should you wish to repay and close your lifetime mortgage, then an early repayment charge may be payable. Most lenders’ plans now come with fixed term early repayment charges, which means that once the plan has been in place for a period of time stipulated by the lender, it can be repaid without incurring an early repayment charge.

Early repayment charge exemption. A feature of many lifetime mortgages that is available for joint borrowers. Should a partner die or move into long term care, then you are able to fully repay and close your lifetime mortgage without penalty, within a period of time stipulated by the lender – such as 3 years.

Enhanced lifetime mortgage. A type of lifetime mortgage that enables those with certain pre-existing medical conditions to either borrow more, or receive a lower interest rate on their plan. Find out more about enhanced lifetime mortgages here.

Equity. The market value of your property, minus any secured loan(s) or mortgage(s) outstanding on it. The remainder is the equity in your property. For example, if your property is valued at £250,000 and there is an outstanding mortgage on £50,000 on the property, the equity in the property is £200,000.

Equity release. A financial product that allows homeowners over the age of 55 to borrow against some of the equity that has built up in their home over time. There are two types of equity release available – a lifetime mortgage (which is the most popular) or a home reversion plan. Both of these are included in this A-Z.

Equity Release Council. The equity release industry trade body that sets governance standards and a Code of Conduct that its members must follow. Equity Release Supermarket is a long-standing member of the Council and their website address is www.equityreleasecouncil.com

Estate. A collective term which describes everything you own after you have died – such as your home, savings and possessions which are left to your chosen beneficiaries.

F

feefo. One of the leading, independent review websites. It is Equity Supermarket’s chosen partner where our customers can leave their reviews of our service. www.feefo.com/en-GB/reviews/equity-release-supermarket?displayFeedbackType=SERVICE&timeFrame=YEAR

Financial Conduct Authority (FCA). The government’s watchdog which oversees and regulates the activity of financial services organisations in the UK.

Financial Ombudsman Service (FOS). The organisation that settles disputes between financial services business and their clients. It is free to use service and their website is www.financial-ombudsman.org.uk

Freehold. This the outright ownership of the property you live in and land on which it was built.

G

Gilt rate. Government bonds in the U.K. are known as gilts. The term gilt is often used informally to describe any bond that has a very low risk of default and a correspondingly low rate of return. They are called gilts because the original certificates issued by the British government had gilded edges. As they are government bonds, they are particularly sensitive to interest rate changes. The prevailing gilt interest rate is used less frequently by equity release lenders to calculate the size of the early repayment charge that could be payable if you chose to repay your plan early.

Guaranteed inheritance protection. A feature that is available on many lifetime mortgages which enables you to ensure that a % of the value of your property is passed onto your beneficiaries. For example, if a property is valued at £250,000 and you want to guarantee an inheritance of £75,000, then the £75,000 is ring fenced and you are then able to borrow against the remaining £175,000.

H

Home reversion. A type of equity release where money is released by selling up to 100% of your home to the home reversion provider. In return you receive a tax-free lump sum and a lifetime tenancy of the property. The plan ends on your death or move into long term care and the home reversion company receive their % split of the value of the property at the time. The remainder is passed onto your beneficiaries. Find out more about home reversion plans here.

I

Income plans. A type of lifetime mortgage where you can release equity by receiving monthly income payments directly to your bank account. Find out more about income plans here.

Inheritance protection. See Guaranteed Inheritance Protection above.

Interest-only lifetime mortgage. A type of lifetime mortgage whereby the accruing interest on the plan is repaid monthly. When the plan ends, only the initial amount borrowed is repayable to the lender. Find out more about interest-only lifetime mortgages here.

K

Key facts Illustration (KFI). A document which is part of the equity release advice process. It explains to you the features and potential risks of the equity release plan or plans you are considering.

L

Later life lending. A collective term for all the borrowing options for homeowners aged over 55. It encompasses equity release, retirement mortgages and retirement interest-only (RIO) mortgages.

Leasehold. A type of property ownership, which is for an agreed period of time. Once the lease expires (and it is not extended), ownership of the property returns to the person(s) that own the freehold.

Lender. A company that offers equity release plans. Often referred to as a provider.

Lifetime mortgage. The most popular type of equity release plan and there are many to choose from. Allows homeowners over the age of 55 to borrow a % of the value of their property. In return the lender takes a first charge over the property which enables you to retain full ownership of your home. A lifetime mortgage is designed to be repaid when the last plan holder dies or moves into long term care. Find out more about lifetime mortgages here.

Loan to value (LTV). This is the amount of money you can borrow against the value of your home and it is expressed as a percentage. For example, if your home is valued at £200,000 and you borrow £100,000, this is 50% LTV.

Lump sum lifetime mortgage. A popular type of equity release plan whereby you borrow the maximum a provider will lend to you as a single, one off ‘lump sum’. Find out more about lump sum lifetime mortgages here.

M

Means-tested benefits. This describes a number of benefits you may be receiving depending upon your income – which must be below the threshold set by the government. Taking out equity release can mean that you are no longer eligible to receive such benefits, but this can be avoided through the type of lifetime mortgage you choose.

N

No negative equity guarantee. This guarantee comes with any equity release plan from a provider that is a member of the Equity Release Council. Equity Release Supermarket only advises on plans from members of the Council.
If, when your plan ends, your property is worth less than the amount that must be repaid, this guarantee means that your beneficiaries will not have to make up the difference and so will never be out of pocket.

P

Power of Attorney (POA). There are two types of POA – financial or health. A financial POA provides legal authority that allows a third party to manage your financial affairs on your behalf should you lose the capacity to do so. A health POA provides legal authority to manage your health and wellbeing affairs should you lose the capacity to do so.

Provider. A company that offers equity release plans. Often referred to as a lender.

R

Retirement mortgage. A residential mortgage that is designed to let you continue your existing mortgage into retirement. You can find out more about retirement mortgages here.

Retirement interest-only (RIO) mortgage. A residential mortgage that is designed to let you continue your existing interest-only mortgage into retirement. It is only repayable when the last borrower dies or moves into long term care. Find out more about retirement interest-only RIO mortgages here.

Roll-up interest. See compound interest. The two terms mean the same and are often interchangeable.

S

Second home/holiday home plans. A specialist range of equity release plans that allows owners of additional properties to borrow some of the equity within them. Find out more about second home/holiday home equity release here.

Solicitor. A legal professional that will manage all the legal aspects of equity release for you. Find out more about what a solicitor does during the equity release process here.

Suitability report. Following your meeting with an adviser from Equity Release Supermarket, they will produce this personalised document which details the reasons for the recommendations they have made. This will be tailored to meet your individual needs.

T

Tax-free. The money you release through an equity release plan is tax-free and there is neither Income Tax nor Capital Gains Tax payable on it. This is because you are borrowing money against a residential property. That said, there may be tax implications with what you choose to do with your money.

V

Valuation. As part of the equity release process, the property must be valued by a surveyor appointed by the lender. This ensures that it is fit to lend against and it also confirms the market value of the property.

Voluntary repayments. A feature of most lifetime mortgages, which typically allows you to repay between 10-40% of the original amount borrowed each year without penalty, or proof of income. Find out more about voluntary repayments here.