Equity Release Glossary

Annuity

An annuity is a plan that can be bought with a cash lump sum that provides a taxable income. It guarantees a series of income payments which can be paid monthly, quarterly, half yearly or yearly. The amount of income received depends on annuity rates, your sex, age and sometimes your state of health at the time of application.

Compound interest

Compound interest is basically interest paid on interest. Some lifetime mortgages have compound interest added. This means that any interest accrued is added to the loan amount and further future interest is charged on that total amount.

Drawdown lifetime mortgage

Drawdown is a facility within a lifetime mortgage that allows you to take cash payments in stages as and when you require them.

Early repayment charge

An early repayment charge is a fee charged by some Equity Release scheme providers if you decided to pay the loan back early, i.e within a specified number of years after taking the plan or anytime before the end of your lifetime.

Equity

Equity is the value of money in your home after deducting any outstanding mortgage.

Equity release

An Equity Release plan lets you release money from your home (the equity), without the need to move by borrowing or selling all or part of it.

Estate

Your estate is all of your assets, anything that you own that is of monetary value, including your home, your belongings, savings and investments.

Fixed rate

A fixed rate is a rate of interest that will never change despite what happens to the Bank of England base rates, lender interest rates, or Retail Price Index.

FSA

FSA is an abbreviation for the Financial Services Authority. They are responsible for regulating the advice and sale of equity release plans. They ensure that consumers are treated fairly.

Independent financial adviser

An independent financial adviser is an adviser who offers products from the whole of the market and the option of paying a fee rather than commission.

Inheritance

Inheritance is the value of your estate that will be left to your heirs when you die.

Inheritance tax

Inheritance tax is a tax that is potentially payable depending on the value of your estate upon your death. Currently the nil rate band is £312,000.

Interest

Interest is a charge that is added to a loan, mortgage or debt. It can either be calculated monthly or annually depending on the individual plan.

Lifetime lease

A lifetime lease applies when all or part of your home is sold to a home reversion company. It gives you the right to stay in your home, normally rent free for the rest of your life.

Lifetime mortgage

A lifetime mortgage is a type of Equity Release plan that is a loan secured on your home. No monthly repayments are made on the loan until the death of the last surviving partner or their moving permanently into long term care.

Monthly repayments

Monthly repayments are regular amounts of money made to repay a loan or debt. Equity Release plans do not require any monthly repayments as they are designed to be repaid in full from the eventual sale of the house.

No-negative equity guarantee

This is a guarantee that no matter what happens to property values in the future, you will never owe more than the value of your property. It applies to all SHIP (Safe Home Income Plans) approved plans.

Personalised illustration

A personal illustration sets out the details of a specific recommended plan. It helps you to understand the implications, advantages and disadvantages.

Purchased life annuities

Purchased Life Annuities can provide you with a guaranteed, level or increasing income for life in return for a cash lump sum. They can include guarantees which mean that the income payable would continue to be paid to your estate if you died or the balance of the money used to purchase the plan but not yet paid out as income is returned to your estate. A non-tax payer can benefit from the income being paid without tax deducted.

Reversion plan

A reversion plan is a type of Equity Release plan that involves all or part of your home being sold to a home reversion company. All plan providers give you the right to remain in your home for life.

SHIP

SHIP is an abbreviation for Safe Home Income Plans. It is a self regulated body supported by some of the leading Equity Release plan providers. Only companies that have Equity Release plans of their own to sell are members of SHIP. We are not members because we are independent advisers who do not have any plans of our own to sell.

Survey

A survey is an inspection of your property by a surveyor. It details the value and condition of the property.

Variable rate

A variable rate is a rate of interest that can fluctuate depending on the Bank of England base rate or the Retail Price Index (RPI). If the base rate or RPI goes up, the variable interest rate may increase, and when the base rate or RPI goes down it may decrease.