Equity Release Jargon Buster

A

Additional Advance – A lump sum taken from the cash reserve in a drawdown lifetime mortgage.

APR (Annual Percentage Rate) – The yearly cost of borrowing, shown as a percentage. For example, a credit card with a 19% APR means you’d owe around £190 in interest on a £1,000 balance after a year.

B

Beneficiary – A person, charity, or organisation set to receive money or assets from a will, trust, or life insurance policy.

C

Cash Facility – The reserve fund available in a drawdown lifetime mortgage, from which you can withdraw money over time.

Compound Interest – Interest that builds up over time on both the original loan and the accumulated interest. Also known as roll-up interest, it can be applied daily, weekly, monthly, or annually.

D

Downsizing – Selling your home and moving to a smaller or cheaper property to access equity.

Drawdown – A lifetime mortgage where you take an initial lump sum and withdraw more funds as needed, rather than taking the full amount at once. Since interest is only charged on the amount withdrawn, it can be a more cost-effective option.

Drawdown Reserve – The amount of money set aside in a drawdown lifetime mortgage that you can access when needed.

E

Early Repayment Charge – A fee for repaying some or all of your lifetime mortgage earlier than agreed, depending on the plan and provider.

Enhanced Terms – A way to access more money or lower interest rates on an enhanced lifetime mortgage if you have a qualifying health condition or lifestyle factor.

Equity – The market value of your home minus any outstanding mortgage or secured loans.

Equity Release Council – The industry body that sets rules and standards to protect customers using equity release products.

Estate – Everything you own, including your home, savings, and possessions, which is passed on to your beneficiaries when you die.

Did you know?

Certain health conditions like high blood pressure, diabetes, or a history of smoking could help you qualify for a higher cash release or lower interest rates through an enhanced lifetime mortgage.

F

Financial Conduct Authority (FCA) – The UK’s financial services regulator, ensuring lenders and advisers follow strict rules.

H

Home Reversion – A type of equity release where you sell part or all of your property in exchange for a cash lump sum while continuing to live in it rent-free.

I

Inheritance Protection Guarantee – A feature that lets you protect a portion of your home’s value so that a guaranteed amount remains for your beneficiaries.

Inheritance Tax – A tax on estates over £325,000, charged at 40% on amounts exceeding this threshold. If left to a spouse or civil partner, the tax-free allowance is transferred to them, doubling the limit to £650,000.

Initial Advance – The first payment you receive when you take out an equity release plan.

J

Joint Borrower – A plan taken out by a couple, ensuring both partners can remain in the home until both pass away or move into long-term care.

K

Key Facts Illustration (KFI) – A document outlining all the features, risks, and costs of an equity release plan, provided during the advice process.

L

Leasehold – When you own a property for a fixed period but not the land it sits on. Ownership reverts to the landlord (or freeholder) when the lease ends.

Lifetime Mortgage – The most common type of equity release, allowing homeowners aged 55+ to unlock money from their home while retaining ownership. The loan is repaid when the house is sold after death or a move into long-term care.

Loan to Value (LTV) – The percentage of your home’s value that a lender allows you to borrow, typically based on age, health, and property value.

Long-Term Care – When someone permanently moves into a care home or similar facility.

Lump Sum – A one-time cash release from your equity, taken all at once.

M

Means-Tested Benefits – Government benefits where eligibility depends on your income and savings. Equity release can affect your entitlement to some of these.

N

No Negative Equity Guarantee – A key protection in all Equity Release Council-approved plans. It ensures you will never owe more than the value of your home, and your beneficiaries won’t inherit debt from your plan.

P

Payment Holiday – A break from making repayments, available on certain interest-only lifetime mortgages.

Portable – A feature of Equity Release Council-approved plans that lets you transfer your equity release plan to a new property if you move (subject to the lender’s approval).

Provider – The company that offers and funds your equity release plan, usually arranged through a financial adviser.

R

Roll-Up Interest – Another term for compound interest, where interest accrues on both the original loan and the accumulated interest over time.

S

Secured Loan – A loan backed by an asset, usually your home, which the lender can claim if you fail to repay.

U

Unused Cash Facility – The remaining funds available in a drawdown lifetime mortgage, which you can access later after taking your initial advance.