Equity release glossary
You may have come across some words and terms which you're not familiar with when reading about Equity Release. We hope our glossary below can shed some light on this sometimes complicated topic.
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Additional borrowing If you want to borrow more money in addition to your current lifetime mortgage, you can choose to apply for a cash reserve facility withdrawal or a further advance
Advice fee A fee payable to your financial adviser. Lifetime mortgages are only available through financial advisers. They must be qualified to give advice on equity release. The financial adviser you choose to appoint may charge you a fee for their service. They should disclose the fee and when it is payable at the outset.
APR Annual Percentage Rate. This helps you compare lifetime mortgages by giving you one rate that shows the overall cost of the mortgage. It takes into account some fees and charges as well as the interest due.
Cash reserve facility If you think that you’d like to borrow more money in the future, you can choose to add a cash reserve facility to your Lifetime Mortgage at the outset. This facility means that you can withdraw further funds without taking financial advice. Interest is not charged on the amount in the facility until you withdraw it.
Completion fee A fee to cover the costs of setting up the mortgage. You can choose to pay this at the point of completion or add it to the mortgage balance.
Commission Is the amount we pay to your financial adviser. It is also called the Procuration, or Proc’, fee.
Compound interest This is when interest accrues on the lifetime mortgage, and interest is charged on the interest.
Drawdown This is when you withdraw money from your cash reserve facility. In some instances, it is also used to describe a cash reserve facility.
Early repayment charge (ERC) A charge for repaying some or all of your mortgage early. Lifetime mortgages can be repaid at any time. However, the plans are designed to last for the rest of your life, so an early repayment charge may be payable if the loan is repaid early.
Equity This is the value stored up in your home, minus any secured charges (such as a mortgage) against it.
Equity release Describes a range of products that allow you to release some of the cash stored up in your home without needing to move. The money you release from your home is tax-free and you can spend it on whatever you choose. There are two types of equity release: lifetime mortgages and home reversions.
FCA The Financial Conduct Authority authorise and regulate firms, and ensure they adhere to certain principles of business.
Fixed rate This means that the interest rate applied to your lifetime mortgage is agreed at the outset for a set amount of time. It does not fluctuate.
Flexible mortgage This usually means that you have chosen to add a cash reserve, or ‘drawdown’, facility to your lifetime mortgage.
Further advance This is when you apply to borrow more money. You need to take financial advice as it is regarded as a new transaction, and the application needs to meet our current lending criteria at the time. You may have to pay additional fees when you apply.
Home reversion A home revision is a type of equity release. It is when you sell all or part of your property in return for a tax-free lump sum. You stay on in your home as a tenant for an agreed amount of time, usually paying no rent.
Inheritance Guarantee You can choose to protect, or ‘guarantee’ a percentage of the eventual sale value of your home at the outset. This means that the percentage you choose to protect is guaranteed to be available to you or your beneficiaries as an inheritance in the future.
Initial advance This is the loan amount which is released to you when the mortgage completes. It does not include the amount in your cash reserve facility.
Interest payment With some products you can choose to pay some or all of the interest each month, to reduce or eliminate the impact of interest roll-up and compound interest. We call these interest payments.
Interest roll-up When no monthly or ad-hoc payments are made, the interest is added to the outstanding loan balance each month and is therefore ‘rolling up’.
Intermediary This is another term for a financial adviser.
KFI A Key Facts Illustration is a document which explains the lifetime mortgage to you, including any risks, features and fees. It is provided to you before you apply for the product. It is set out in a prescribed way so that you can easily compare mortgages side by side.
Legal Fees the fees you pay to your Solicitor for the work they do for you in relation to your lifetime mortgage.
Lifetime mortgage A Lifetime Mortgage is a type of equity release. The amount borrowed (along with any charges or interest accumulated) will be repaid at the time of your death or when you move into long-term care, usually using the cash generated from the sale of your home. You will always retain ownership of your home, and it will never be repossessed, as long as you abide by the terms and conditions of the loan.
Loan to value (LTV) The LTV is how much mortgage you have in relation to how much your property is worth. It’s normally a percentage figure. For example, if your home is valued at £100,000 and the maximum LTV offered is 44%, you can borrow a maximum of £44,000.
MER Monthly equivalent rate. This is the monthly interest rate which is applied to your lifetime mortgage.
Mortgage term The term of the mortgage is the number of years that it lasts for. With a lifetime mortgage, an estimated term is given to you, but because the lifetime mortgage term is not fixed, it could last for a longer or shorter period of time.
No Negative Equity Guarantee This is a guarantee that when your property is sold, if the proceeds after solicitors’ and estate agents’ fees are not enough to pay the amount owed to us, we will not ask you or your beneficiaries to pay the shortfall. If your property is sold for more than the amount you’ve borrowed against it, the amount left over belongs to you or your beneficiaries.
Offer We will formally Offer you a mortgage when we have reviewed your mortgage application and are happy that everything meets our criteria.
Porting If you move to a new property that is suitable to us, you can move the loan to your new home under the same Terms and Conditions – we call this porting.
SHIP The Equity Release Council, formerly known as SHIP, are the trade body for the Equity Release industry. All members adhere to SHIP standards designed to protect consumers and you may be asked by your Solicitor to sign a SHIP certificate.
Valuation A surveyor will inspect your property and confirm to us the current market value. We call this the valuation.
Voluntary payment If you have a Voluntary Select product, you can choose to make payments of up to 10% of your initial loan balance each year, without incurring an early repayment charge. Each payment you make is called a voluntary payment.