Equity release jargon terms

This is the amount of interest you’ll earn in a year on savings or investments. The higher the AER, the more interest you will earn. All adverts for savings accounts that earn you interest will quote the AER, so you can compare them.

This shows the overall cost of borrowing, including the interest you’ll be charged as well as any fees. Generally, the lower the APR, the better the deal for you. It can be used to compare different credit and loan offers.

Once you borrow money, the interest you owe on that loan starts to be added to the original amount you borrowed and future interest is then calculated on both amounts. So you end up paying interest on both the money you’ve borrowed and the interest as it builds up so you end up paying interest on interest. This means the amount you owe will increase quickly year on year.

The charges that solicitors pass on to their clients from third parties are called disbursements. These charges are in addition to the basic fee charged by most solicitors. They can be for things such as mining surveys and the Land Registry.

Downsizing protection is a feature of some equity release plans. It allows you to pay your equity release plan back early should you move home, without incurring any early repayment charges, subject to certain conditions. The exact details of downsizing protection differs from lender to lender.

This type of equity release plan gives you an initial amount of money, whilst also having the ability to access further amounts as and when you need it. As you only start to pay interest on the money you release as you take it, it can be a more cost⁠-⁠effective way of releasing equity.

You can repay your lifetime mortgage at any time however, if you decided to do this there could be a fee to pay. This is called an Early Repayment Charge or ERC.

Early repayment charges can be ‘defined’ or ‘gilt based’.

If they are ‘defined’ charges, the charge each year will be clearly set out and will typically reduce over time.

If the charges are ‘gilt based’ they will vary during the term based on the interest rates on government borrowing or ‘gilts’.

There will be certain circumstances in which an early repayment charge will not apply, which will vary depending on the plan.

Should you have received advice about an equity release plan, please see your Key Facts Illustration (KFI) for more details.

Some equity release plans offer an ERC exemption that allows joint customers to repay their equity release in full, free of any early repayment charge, if one of them passes away or moves permanently into long⁠-⁠term care within a certain period of time. The exact details of the ERC exemption differs from lender to lender.

This is an amount of money available to cover unexpected financial expenses such as large unexpected bills or repairs.

An enhanced (or “impaired”) lifetime mortgage means you could potentially borrow more or get a plan with a lower interest rate, as a result of having poor health.

The Equity Release Council (ERC) is an industry body responsible for ensuring its members act with integrity and transparency in dealing with its customers. Age Partnership is a member of the Equity Release Council.

Your estate is anything you own when you die after any borrowing has been deducted. Please remember, equity release will reduce the value of your estate.

When considered in relation to equity release, fixed interest rates are interest rates which are fixed for the life of the plan.

If you need to access more money in the future, it may be possible to release more money from your home through your existing equity release lender – this is known as a further advance.

This type of equity release plan works by you selling part, or all of your home to a reversion plan provider, in return for a lump sum of cash. You still have the right to stay in your home rent⁠-⁠free, for as long as you live, but it will be owned by the home reversion lender. This type of equity release is only available to those who are aged 65 or over.

Certain equity release plans provide the flexibility to ringfence a percentage of your home’s future value, which can then be passed on to your beneficiaries when you die and the house is sold, regardless of how much is outstanding on the loan.

With joint tenancy, two (or more) people own the home equally. Upon first death, the share own by the deceased person is automatically passed to the other (or others).

A document provided by the lender which breaks down the terms and conditions of your plan. All lenders must provide a KFI in the same format, so that if you have two KFIs you can easily compare them.

Leasehold is a form of property ownership where you own the property for the length of the lease agreement but not the land on which it is built. To be eligible to undertake equity release, the lender will require the lease agreement to last for a minimum number of years.

This type of equity release plan works by you borrowing a percentage of your home’s value, as a loan secured against your home. With a lifetime mortgage you continue to own 100% of your home.

Refers to the percentage of a property’s value which is being borrowed. For example, if £30,000 were borrowed against a property with a value of £100,000, we would say the LTV was 30%.

Most equity release plans will allow you to take your money as a one cash amount which is known as a lump sum.

Some benefits offered by the Government are only paid to those who can show their income and capital is below specified limits. These types of benefits are called means-tested benefits.

All lifetime mortgages offered by a member of the Equity Release Council come with a no⁠-⁠negative equity guarantee. It means that your estate will never owe more than your property is worth when it is sold.

Once a case is accepted by the lender and a valuation has been completed, an offer document will be issued to you. This gives a detailed breakdown of the plan, including any changes which have occurred since the Key Facts Illustration (KFI) was issued.

All plans recommended by Age Partnership are portable. This means that should you wish to move home, as long as your new house meets the lender’s criteria, then the plan can be moved with you. The plan is then secured against the new property.

A Power of Attorney is a legal document where one person gives another person the right to make financial and/or medical decisions on their behalf. You can only set up a Power of Attorney if you have the mental capacity to do so. Not having one in place can cause significant problems if you lose mental capacity at a later date. Rules differ between England, Wales, Scotland and Northern Ireland.

The prevailing rate is the interest rate currently available. This could be higher or lower than your initial interest rate. If you have a drawdown plan, the money you borrow (or draw down) in the future will be at the prevailing rate at the time the extra funds are released. Therefore as interest is added to these funds it may be at a different rate to the initial release.

Once your application is received by the lender, a property survey will be completed to ensure the estimated valuation is accurate so that the lender can confirm they are happy with amount you wish to borrow. This survey is completed by an Independent Chartered Surveyor.

During the property survey, the surveyor may identify what they consider to be essential works needed to the property. As a result, they may recommend the Lender holds back some of the money they planned to lend to you until the essential works are completed. Or, the Lender may place an ‘undertaking’ or condition on your offer, lending you the full amount but stating that the works must be completed within a set period of time.

With a RIO, you only have to pay back the interest to the lender each month. They are similar to standard interest⁠-⁠only mortgages but with most RIOs, the loan is only repaid when you sell your property, move into residential care or die. You have to prove that you can afford to pay the interest each month.

The Right to Remain is a guarantee that you are able to continue living in your property until the end of the plan, generally in the event of your death or moving into long⁠-⁠term care. This is subject to you sticking to the conditions of the plan (e.g. keeping the property in a good state of repair).

With a tenancy in common, two (or more) people own the home but can each own a different percentage share. Upon the first death, their share of the property goes to their estate and does not automatically pass to the other owner.

If you want us to deal with someone else on your behalf, that person would be known as a third party. You would need to give us permission to do so, and there are only certain aspects of the advice process that we can complete with someone else.

Should the surveyor’s property valuation be higher or lower than the amount estimated, it may be referred to as an ‘up valuation’ or ‘down valuation’. Depending on the amount you require and the maximum LTV offered by the lender, this may result in changes to the amount which can be released or the interest rate of the plan.

Plans with variable rates have interest rates that can vary year on year, based on changes in market conditions. They generally offer a lower rate of interest initially.

This is a document which may need to be signed by anyone aged 17 or over, who is permanently living in your home and isn’t part of the equity release plan. It confirms that, when the equity release plans ends (i.e. all parties pass away or move into long⁠-⁠term care), their right to live there will end. This is so that the property may be sold and the plan repaid.