Equity release glossary
See through confusing industry jargon with these dictionary definitions.
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APR. This stands for ‘annual percentage rate’ and is expressed a percentage. This figure tells you how much interest you’ll pay per year on a loan, including any compulsory fees.
Arrangement Fee. A one-off fee you’ll pay to cover the costs of arranging your equity release deal. This is typically taken from your lump sum before you receive it, but you can sometimes choose to add it to your loan.
Beneficiary. The individual(s) due to receive someone’s estate after they die. The beneficiary must inform the equity release company when one of its customers dies or moves into long-term care, in order to settle up the loan.
Compound interest. Interest charged on top of interest already owed. This will apply on most equity release plans.
Downsizing. The process of moving out of your current home into a cheaper one. This is a more cost-effective way to release equity from your home, as no interest is charged. Many older people do this, so they can fund their day-to-day expenses with the profits.
Drawdown plan. An arrangement where the customer withdraws money from a loan or savings account in intervals, rather than as one lump sum. With an equity release drawdown plan, the customer will only pay interest on the amount withdrawn.
Early repayment charge. A fee charged for repaying your loan early. With an equity release plan, this fee tends to be incredibly high.
Enhanced plans. This type of equity release plan takes your health into account when considering your interest rate or the amount of equity you are allowed to release. Those with serious health conditions can use this type of plan to get a better deal.
Equity. The amount of wealth you have built up in your home. To calculate it, subtract the amount owed on your mortgage from the current value of your home.
Equity release council. The body responsible for ensuring the quality of products, employees and standards across the equity release industry.
Estate. All of the cash and assets owned by an individual.
Freehold. The ownership of the land a property sits on. If you own a property and the freehold, it’s easier to arrange a cheaper equity release deal.
Financial Conduct Authority. The regulator responsible for setting and overseeing the standards of financial companies, including equity release providers.
Home reversion plan. A type of equity release plan, where you sell a stake in your home in exchange for a cash lump sum.
Income. The amount of money you receive from a job, investments, savings interest etc.
Inheritance tax. The money paid to the government out of a deceased person’s estate. This tax is calculated as a percentage of the estate above a certain threshold.
Inheritance protection. A feature available with an equity release plan, which guarantees a minimum percentage of the customer’s estate is left to their beneficiaries. This will limit the size of the lump sum they can receive.
Interest-only mortgage. A mortgage where your monthly repayments only cover the interest due. The capital must be repaid in full at the end of this mortgage.
Joint borrower. Someone who applies for a loan alongside another individual. These individuals are jointly responsible for the repayment of the loan. A joint equity release plan does not need to be repaid until both borrowers have died and/or moved into long-term care.
Key facts illustration. A document which illustrates the important details of your equity release plan.
Leasehold. Ownership of a property, but not necessarily the land it sits on. In this case, the property owner has to pay ground rent and maintenance fees to the land owner, and it will be more difficult for them to obtain a cheaper equity release deal.
Lifetime mortgage. A loan backed by the applicant’s property, which they won’t have to repay until they die or move home. Interest compounds quickly on these loans, but the applicant will never owe more than the value of their property.
Loan-to-value. The size of a loan, expressed as a percentage of the property it is backed by.
Lump sum. A one-off cash payment.
Means-tested benefits. Government payments offered to those below a certain income level. If you arrange an equity release plan, it may affect your entitlement to these payments.
No negative equity guarantee. The assurance that you will never owe an equity release provider more than the value of your property.
Portable. A financial arrangement that can be backed by your new property if you decide to move home.
Provider. The company that provides a homeowner with their equity release deal.
Rate compounds. The addition of interest onto the amount owed to the provider. This could occur daily, monthly or annually depending on the provider’s terms. The more often this happens, the faster that interest will accumulate.
Reversion company. The body that buys a stake in a customer’s home in exchange for a cash lump sum.
Secured Loan. A loan backed by an asset or multiple assets.
Solicitor. A qualified legal practitioner responsible for preparing and overseeing legal documents. Homeowners are obliged to use one when arranging an equity release plan.
Tax-free. A payment that does not affect the recipient’s tax bill. This applies to all equity release payments.
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