The Responsible Equity Release Jargon Buster
Equity release can be a tricky concept to wrap your head around – especially if you haven’t yet met up with one of our local, friendly advisers to explain the process – and when countless companies use confusing jargon, it doesn’t make it any easier. Choosing to release equity from your home is an important decision, and you want to ensure you have all the knowledge you need. This is why Responsible Equity Release has put together this helpful jargon buster, to define and clarify any unfamiliar terms used throughout the process.
Adviser – An adviser will visit you at a time and place that suits you in order to review your situation and advise on the best actions to take to benefit your finances. They are friendly, working professionals specially trained and qualified in all things equity release.
Annuity – This is a determined amount of money that is paid between parties annually, such as with a mortgage or a pension.
APR – This stands for Annual Percentage Rate and it refers to the interest rate within the year. However within equity release it usually means Effective APR, which concerns the interest rate a borrower will pay on a loan.
Arrangement Fee – An amount of money that is paid to the lender or lending agency, similar to an administration fee, used to cover various costs needed to release your home’s equity.
Beneficiary – Those a homeowner wishes to leave their estate to in the event of their death, as stated in their will.
Calculator – Here at Responsible Equity Release, we have our own equity release calculator. Input the required details (income, age, address) and the calculator can let a customer know exactly how much equity they may be able to release from their property.
Compound Interest – This is a particular form of interest unique to Lifetime Mortgages. Unlike with regular mortgage interest rates, lifetime mortgage interest will simply be added onto the original loan amount.
Downsizing – An option that some advisers may pose to a homeowner if equity release does not meet their criteria. This involves selling a customer’s current property and using the money to purchase a smaller home, keeping the cash difference to spend.
Discretionary Income – The money you have left from your income after paying for life essentials, such as bills, food and travel. There is also Disposable Income – The money that you have left after tax deductions. Both of these may be an important factor to an equity release adviser as low incomes are one of many reasons people turn to Lifetime Mortgages.
Drawdown Lifetime Mortgage – One of three Lifetime Mortgages plans. A Drawdown plan allows homeowners access to a large cash sum to be drawn from as needed throughout their lives.
Early Repayment Charges – Equity Release is intended as a long-term investment, therefore there are issues if a customer chooses to withdraw from the plan after only a few years. In order to accommodate for these issues, the customer in question will be charged for their early departing.
Estate – The estate refers to the whole of your financial assets, such as a home, an income,any savings, family heirlooms or personal possessions. Equity release may lower the value of an estate, as the equity held in a property is a core part of it.
Equity Release – Over time, a property will build up equity, cash value. Normally, this will remain part of the property, but with equity release, homeowners over the age of 55 are able to access the money as a cash lump sum, to help them through retirement.
Equity Release Council – The industry body for the entire equity release sector, ensuring all companies follow ethical and qualified SHIP (Safe Home Income Policy) standards. Responsible Equity Release are proud and trusted members of the ERC.
FCA – This stands for Financial Conduct Authority, an independent body dedicated to regulating financial services, including equity release plans, to ensure its ethical use.
Fraud – A criminal act usually involved in the unlawful acquisition of money. In equity release, professional advisers remain on the look out for those intending to use their Lifetime Mortgage loans for illicit reasons.
Freehold – A type of property in which the resident is in complete ownership of the land, home and surrounding areas such as gardens or garages. A property must be a freehold or a leasehold in order to release equity.
Home Reversion Plan – This is a form of equity release in which a homeowner may sell a part of their property in return for a cash sum or a regular income. Responsible Equity Release does not advise on Home Reversion Plans.
Impaired Life – This refers to a homeowner’s life choices or poor health conditions, which with many equity release companies may allow them to be eligible for enhanced terms, often resulting in a larger lump sum of money.
Inheritance Tax – A tax that is charged on an estate upon the death of the homeowner, as all the assets are passed down to the heirs.
Joint Policy Holder – If the homeowner on a lifetime mortgage plan dies, the joint policy holder will not be kicked out of their home.
Lifetime Mortgage – This is a popular form of equity release that we deal with here at Responsible Equity Release. A lender will offer a loan based on the value of a homeowner’s property, which will be paid back upon the sale of the property after the owner’s death.
Lump Sum – A one-off large payment of cash, rather than a regular income.
Negative Equity – This refers to a situation where the homeowner owes a lender more than the original home value, perhaps in the event of a housing crisis. But don’t worry, as members of the ERC, Responsible Equity Release promise a No Negative Equity Guarantee – we promise there will be no additional costs for a homeowner or their heirs should negative equity occur.
Personalized Illustration – A unique set of data calculated and given by an adviser based on a homeowner’s details and desired equity release plan.
Portability – With some (not all) equity release plans, homeowners are able to move from the property in which they took out the lifetime mortgage plan, and transfer it to their new home. This is subject to certain standards and regulations and should be discussed with an adviser.
Roll-Up Lifetime Mortgage – Another unique equity release plan, but rather than a Drawdown the homeowner receives the equity in one lump sum.
Survey – In order to assess the value of a home in order to offer a loan, a lender may need to survey the property.