To help you understand the terms you will come across when considering equity release, we've put together a helpful glossary:
The amount of interest that has accumulated on a plan over time.
A fee that you pay the lender to cover the cost of setting up the equity release plan. This may also be referred to as “Application fee” or “Set-up fee”. Your adviser may also charge you a fee (called an arrangement fee) to cover their costs of arranging the equity release plan for you.
A fee that you pay to the equity release provider to cover the cost of setting up the equity release plan. This may also be referred to as “Arrangement fee” or “Set-up fee”.
Benchmark interest rate
This is an interest rate used by some providers in calculating an early repayment charge.
Insurance that covers physical damage to a building as opposed to its contents. Equity release plan holders are required to have adequate buildings insurance to the value of their property.
You may be eligible to receive financial support from the government, such as Council Tax Benefit, if you are on a low income or have certain costs to meet because of your personal situation.
An amount of money advanced to a plan holder under the equity release plan. This can also be known as an "initial cash advance", if the lifetime mortgage has a drawdown facility available.
The amount of money available from a provider, from which the initial cash advance is taken.
Legal papers that establish who owns a property and names anyone who has an interest in its value.
The process of taking an amount of money from a pre-agreed cash facility. An initial cash advance is taken first, and then you can drawdown further money as and when you need it – until the pre-agreed cash facility is depleted. Interest is only charged on the drawdown amount you take.
Drawdown lifetime mortgage
A lifetime mortgage that allows a customer to draw down funds in stages as and when required. This means you only pay interest on the amount borrowed at any one time. A lifetime mortgage is a type of loan secured against the value of your home.
Early repayment charge
A fee applied should you choose to repay your mortgage early. This charge is only applicable in certain instances, such as when iterest rates fall, and will vary from provider to provider.
Equity is the value of your home minus any outstanding mortgage or other debts secured against it.
An equity release plan allows you to release tax-free cash from your home in the form of a cash lump sum or regular drawdowns, usually with no monthly repayments to make.
Equity Release Council
An industry trade body that helps to ensure products are safe and accessible for consumers.
Includes your home, possessions and any savings or investments. Your estate is what is left to any beneficiaries, after any debt (such as credit card loans) and inheritance tax is paid off.
A financial adviser provides financial advice based on an individual customer's needs. There are two types of financial advisers – ‘independent’ and ‘restricted’. The type of adviser will affect the advice you are given. Independent advisers can offer the full range of financial products and providers available. Restricted advisers focus on a limited selection of products and providers.
Financial Ombudsman Service
An independent and impartial complaints scheme which aims to settle disputes about financial products or services.
All of the plans that HUB Financial Solutions Limited recommends have fixed rates, which means that the interest rates on the plan will never change throughout its term.
Financial Conduct Authority (FCA)
The UK's financial regulator set up by the government to regulate financial services and protect consumer rights.
Home reversion plan
A form of equity release, where the customer sells all or part of their home in return for a regular income, cash lump sum or both, and continues to live in their home for as long as they wish. When you die or move into permanent long-term care, the property will be sold and the reversion company receives its share of the proceeds.
Initital Cash advance
The amount advanced to plan holders at the start of an equity release plan.
The charge made by lenders on money you borrow fom them. Interest can be variable (goes up or down) or fixed. The Equity Release Council Statement of Principles puts a 'cap' (upper limit) on variable interest rates - and this cap applies for the duration of the lifetime mortgage.
Interest on equity release plans is usually compound interest. This means that interest is added to the loan amount, and future interest is added onto the original loan and any previously-accumulated interest.
Key Facts Document (KFD)
Important information set out in a standard way, so you can compare services, products and costs.
Key Facts Illustration (KFI)
Important information about the financial product you are buying, describing key features and risks.
A loan secured on your home. Normally no repayments are made on the loan until the death of the last surviving policy holder or their move into permanent long-term care.
Loan to Value factor
The maximum amount that can be borrowed against a property based on the age of the youngest applicant and the property value.
The fee you pay to a solicitor for their services.
'No negative equity' guarantee
A guarantee to ensure neither you or your beneficiaries will ever owe more than the value of your home, when your property is sold at the point you pass away or move into permanent long-term care. Even if the sale proceeds are less than the amount owed.
Open market value
The value of the property should it be sold on the open market. For a sale to take place on the open market, it must not be a sudden or forced sale. There must be a willing seller and a willing buyer.
If you wish to move home you may be able to transfer your equity release plan to a new property if the new property is acceptable to the provider. If you transfer your lifetime mortgage to a new property, the provider may reduce your cash facility and you may need to repay some of the amount owed.
If you are a homeowner and you wish to borrow money for a large expense, lenders may let you borrow the money, using your home as security. This is the case with a Lifetime Mortgage, which is a type of loan secured against your home.
A fee that you pay the lender to cover the cost of setting up the equity release plan. This may also be referred to as “Arrangement fee” or “Application fee”.
A fee paid to a lender to cover the inspection of your property by an independent chartered surveyor.