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The Which Equity Release Jargon Buster & Glossary

Deciding to pursue releasing equity from your home is a big decision, and one that we believe should be as informed as possible. There’s a lot of confusing industry jargon out there, which can be difficult to wrap your head around. To help you out, we’ve put together a helpful jargon buster so you exactly what means what.

 

Annuity

the amount of money paid between parties on an annual basis. This could be with a mortgage or a pension.

APR

Annual Percentage Rate. This is the interest rate within the year. In the world of equity release, the term Effective APR is usually used, which refers to the interest rate paid on a loan.

Arrangement fee

The sum of money that is paid to a lender. Similar to an admin fee, an arrangement fee covers a range of costs that are required in order to release equity from your home.

Beneficiary

The person a homeowner wishes to leave their estate to in the event of their death. This will need to be legally stated in a will

Downsizing

This involves selling your home in order to buy a smaller property or one of lower value. The cash difference left over is a way of releasing some equity within the original home.

Discretionary income

This is the amount of money you have left from your income after paying for essentials such as mortgage, bills, travel and food.

Disposable income

Money that is left over after tax deductions are made.

Drawdown lifetime mortgage

A type of lifetime mortgage that allows for equity to be released as and when it is needed. The property is used to secure the mortgage.

The main advantage of a drawdown lifetime mortgage is that interest is only charged once the money is released. However, the amount owed will increase as interest continues to be applied and is accrued over time.

A drawdown lifetime mortgage is repaid when the last surviving borrower living on the property passes away or is moved to long-term care.

Early repayment charge

A lifetime mortgage can be repaid at any time, either using cash or by selling the home. However there is often a charge attached to this, which is added onto the repayment of any money that was released, this is an early repayment charge.

Estate

This term refers to your financial assets as a whole, including your property, income, savings heirlooms and personal possessions.

Equity release

Over time, properties build up equity (value) as you own them. This can remain as part of the property, but equity release allows homeowners over the age of 55 to access that additional equity.

Equity Release Council

This is the industry’s governing body that ensures all companies act ethically and in accordance with Safe Home Income Policy (SHIP) standards.

FCA

The Financial Conduct Authority. An independent body that regulates all companies working within financial services to ensure ethics are maintained.

Fraud

The unlawful acquisition of money through criminal activity.

Freehold

A property is freehold when the resident is in complete ownership of the home, land, and surrounding areas such as gardens and garages. A property must be freehold to qualify for equity release.

Home reversion

A form of equity release where a homeowner may sell part of their property in return for a source of income or a lump sum.

Income

Some types of equity release allow the money to be earned as a regular income rather than one lump sum. This income may only be payable for a set amount of time and then payments will stop.

Inheritance Protection Guarantee

This allows a portion of your home’s value to be preserved as an inheritance. It may result in a higher interest rate being charged and reduce the amount of money that can be released.

Impaired life

This refers to the homeowner and any health conditions that may affect them. These could make the homeowner eligible for enhanced equity release terms, which may return a larger sum of money.

Inheritance tax

If a homeowner passes away and leaves assets to their heirs, inheritance tax is charged on their estate.

Joint policy holder

If someone is listed as a joint policy holder, that person will not have to leave the home should the homeowner on a lifetime mortgage pass away.

Lifetime mortgage

This is a form of equity release that allows a homeowner to borrow or release a percentage of their home’s value. The amount will vary depending on age, for example, older homeowners are able to release more than younger borrowers.

Interest on lifetime mortgages is applied to the amount of money that is released. This means that the amount owed will increase over time. Repayment is paid upon the death of the homeowner or if they are moved into long-term care.

Loan-to-value

The percentage of the property’s value that is owed to the equity release provider.

Lump sum

Once you release equity from your home, that amount will be made available to you as a tax-free lump sum.

Negative equity

Sometimes the occasion arises where a homeowner owes a lender more than the home’s value. This could happen as a result of a housing crisis.

No negative equity guarantee

This guarantee states that neither the original homeowner nor their relatives will owe more than 100% of the home’s original value to the lender. Members of the Equity Release Council will offer this guarantee as standard.

Portability

Some equity release plans allow homeowners to move from one property – where they took out a lifetime mortgage – and transfer it to a new property.

Rate compounds

The addition of interest to the amount that has been borrowed.

Roll-up lifetime mortgage

A form of equity release that allows the homeowner to receive the cash amount in a single lump sum.

Survey

A survey may be ordered by the lender in order to properly assess the value of the property.

 

Want to learn more about releasing equity in your home? Please get in touch today to find out more.