Every industry has its own vocabulary and this one is worse than most. Here is what the words actually mean.
Advice fee What your adviser charges. Ours is a maximum of £1,495 and is only payable if your case completes. If you decide not to go ahead, there is nothing to pay.
Compound interest Interest charged on the amount you borrowed, and then on the interest already added to it. It is why a lifetime mortgage balance grows more quickly the longer it runs, and why borrowing less matters so much.
Drawdown facility An arrangement where you take an initial amount now and leave the rest available in an agreed reserve. You only pay interest on what you have actually taken. There is no set-up cost each time you draw from the agreed facility.
Early repayment charge A charge some lenders apply if you repay your plan sooner than expected. They vary a great deal between lenders, so it is worth understanding yours before you commit.
Equity The part of your home's value that is genuinely yours. Your property's worth, minus anything still owed on it.
Equity release An umbrella term for borrowing against the value of your home in later life without having to move. In practice that usually means a lifetime mortgage.
Equity Release Council The industry body that sets standards for equity release products and advisers. Its standards include a fixed or capped rate for life, the right to stay in your home for life, the ability to move home, the no negative equity guarantee, and the ability to make voluntary repayments without penalty.
FCA (Financial Conduct Authority) The regulator. Equity release advice is regulated, and firms giving it must be authorised. Ours is authorised under number 952887.
Fixed rate for life An interest rate that cannot change for as long as the plan runs. Standard on Equity Release Council approved lifetime mortgages.
Home reversion A different product, where you sell part or all of your home to a company in exchange for a lump sum or regular payments, and continue living there rent free. The minimum is £25,000. We refer these to specialists rather than advising on them ourselves.
Interest only mortgage A mortgage where you pay only the interest each month and the original amount borrowed stays the same. Something else is supposed to repay the capital at the end of the term.
Joint plan A plan in two names. Assessed on the younger applicant's age, and repayable on the second death or when the last borrower moves into long term care, not the first.
Lifetime mortgage The main equity release product. A loan secured on your home, based on your age and property value rather than your income. You keep ownership. No monthly payments are required, though you can make them if you want to. Repaid when the property is sold, normally on death or a move into long term care.
Loan to value (LTV) The size of the loan as a percentage of your property's value. In equity release, the maximum LTV rises with age: roughly 28% at 55, rising to 60% from 80 onwards.
Means-tested benefits Benefits where entitlement depends on your income and savings. Releasing money from your home can affect them, because cash in an account is counted differently from value tied up in your walls.
No negative equity guarantee The protection that means you can never owe more than your home sells for. Any shortfall belongs to the lender, not to you or your family. Standard on every plan we arrange.
Portability The ability to move your plan to a new property if you move house, subject to the lender's terms. If the new property is worth less, you may need to repay part of the loan.
Power of attorney A legal document letting someone you trust act for you if you become unable to. Far easier to put in place early than to sort out afterwards.
Retirement interest only mortgage (RIO) A mortgage where you pay the interest monthly and the balance stays the same. Assessed on whether you can afford the payments rather than on your age, available from 50, with no fixed end date. Because payments are required, your home is at risk of repossession if you do not keep them up.
Roll up When interest is added to the balance rather than paid, so the amount owed grows over time. The default on a standard lifetime mortgage.
Term interest only mortgage (TIO) Similar to a RIO, but with a fixed term rather than running for life.
Valuation The lender's assessment of what your property is worth. It sets the maximum you can borrow, and it is not the same as an estate agent's asking price.
Voluntary payments Payments you choose to make towards the interest or the balance, without being obliged to. Allowed without penalty on Equity Release Council approved plans, and the simplest way to stop a balance growing.
Whole of market Advice that looks across the products available rather than a limited panel. We are whole of market for lifetime mortgages, and provide independent whole of market advice for RIO, TIO and interest only mortgages for ages 50 and over.
If a term you have run into is not here, ask Bruno on the site or speak to Craig.
Book a call with Craig or call 0113 403 5584.
Not sure how any of this applies to your own circumstances? Craig is happy to talk it through, free and with no obligation.
