Equity release glossary

Additional borrowing

If you already have equity release, you may be able to borrow more money later on. It might be possible if you didn’t take out the full loan initially or your home’s increased in value. 

If you have a lifetime mortgage with us, you can find out more in our guide to additional borrowing. The interest rate may be higher or lower than the interest rate charged on your initial loan. You'll also need to get financial advice again and pay an advice fee.

Advice

If you’re considering equity release, you must speak to a financial adviser who’s qualified to advise on equity release. They’ll ask you questions about your situation – also known as a fact find  – to help decide if equity release is right for you. 

When you get in touch with us directly, our team will check your eligibility and make an appointment to speak with an adviser if appropriate. They can only give you advice on our lifetime mortgage.

MoneyHelper is a government-backed service that offers free, impartial guidance to help you manage your money and pensions. Visit https://www.moneyhelper.org.uk/ or call 0800 011 3797.

Advice fee

Usually, a financial adviser or broker will charge a fee for advice on equity release. If you come to us directly, you won’t pay a separate advice fee. Instead we’ll pay the adviser commission once you complete on your lifetime mortgage. Should you apply for additional borrowing in the future, any advice you receive may be subject to a separate advice fee.

Annual percentage rate (APR) 

APR is the annual rate of interest on your lifetime mortgage, with any costs or fees added on.

APRs are used for anything loan-based. Whether you apply for a credit card, take out a loan, or take out a lifetime mortgage, there’ll be an APR attached. It can be used to compare the overall cost of lifetime mortgages on the market.

Arrangement fee

An arrangement fee covers the cost of setting up a lifetime mortgage  or home reversion plan. How much you’ll pay depends on your provider and circumstances. Your financial adviser  will let you know what the arrangement fee is before you decide whether to take out equity release. 

Beneficiary 

A beneficiary is a person you’ve nominated to inherit part of your estate when you pass away. If you have equity release, they’ll get any money left over when your house is sold after any mortgages or loans secured against it are repaid.

Compound interest

The type of interest charged on a lifetime mortgage. It’s applied to the total amount of the loan, including any interest that’s already built up. Consequently, the amount owed can increase quickly, reducing the remaining equity in the property and limiting further borrowing options.

We calculate interest daily on our lifetime mortgage, but we only add the compound interest to your balance once a year.

For more information read our article on how equity release interest rates work.

Downsizing

Where you sell your home to move to a cheaper, and usually smaller, property. It can be an alternative option to equity release, and the money from the sale is yours to use how you like.

Downsizing early repayment charge protection 

Also sometimes called Downsizing Protection. If you’re looking to move home and take your lifetime mortgage with you, your new home needs to meet the provider's lending criteria. If it doesn’t you won’t be able to transfer it to your new home. If your lifetime mortgage offers Downsizing Protection, it means you may be able to repay your lifetime mortgage without an early repayment charge. Be aware that different providers will have different terms and conditions. 

Drawdown or drawdown lifetime mortgage 

A lifetime mortgage  lets you take an initial lump sum from the value of your home, and sometimes lets you have the option to setup a cash reserve facility The cash reserve allows you to take smaller amounts when you need them, which is known as drawdown.

Each time you make a withdrawal from your cash reserve, the interest rate is based on the rates at the time and is fixed for the duration of the loan. It could be higher or lower than the interest rate charged on your initial lump sum. 

If you already have equity release with us, we've written a guide on using your cash reserve.

Early repayment charges (ERCs)

Because a lifetime mortgage  is intended to last for the rest of your life, or until you go into long-term care, there’s usually a charge if you want to repay the loan sooner, subject to our terms and conditions.

We offer fixed early repayment charges and on the Lifestyle Flexible Advantage we also offer a gilt-based early repayment charge. Your adviser will help you choose and explain how the early repayment charges work. If you'd like more information about our early repayment charges before you speak to an adviser, we have a brochure for each. 

For fixed early repayment charges visit: aviva.co.uk/fixed

For gilt-based early repayment charges visit: aviva.co.uk/gilt-based

Early repayment charge exemption

The terms and conditions for some lifetime mortgages will offer ways to avoid substantial early repayment charges. Be sure to check if and when these apply with your provider. 

Eligibility

Providers will set out a list of criteria you’ll need to meet to get equity release. To be eligible for our lifetime mortgage you’ll need to:

• be aged 55 or over (both of you will need to be over 55 if it’s a joint application)
• be a UK homeowner with a home worth over £75,000
• borrow £15,000 or more
• live in your house permanently
• have finished paying your residential mortgage (or able to pay off the rest of your mortgage with the money you get from your lifetime mortgage).

Equity

The market value of your home, excluding any mortgages or loans taken out against it. So, if your home is worth £250,000 and you have £50,000 left to pay on your mortgage, the equity would be £200,000.

Equity release

Equity release lets homeowners aged 55 or over access some of the money tied up in their home. There are two types, lifetime mortgages and home reversion plans. Lifetime mortgages are more common, and they’re the type of equity release we offer.

Equity release lets you take money from your home without having to move. There are two main types. A lifetime mortgage, which is the type we offer, is a loan secured against your home. A home reversion plan involves selling all or part of your home to a provider, usually for less than its market value.

Equity Release Council

The Equity Release Council are a trade body setup to make sure equity release products are safe and reliable. They set a code of conduct, as well as standards and principles that providers must follow if they’re Equity Release Council members. As a member, we’re committed to upholding these standards. 

Estate

When you die, your estate refers to everything you own. This could include your house, money, savings, and possessions.

Financial adviser 

An equity release financial adviser, also known as a broker, usually specialises in equity release  products. They’re there to explain the options available to you and help you decide what’s suitable based on your individual situation. Usually, a financial adviser or broker will charge a fee for advice on equity release. If you come to us directly, you won't pay a separate advice fee. Instead we'll pay the adviser commission once you complete on your lifetime mortgage. If you need to borrow more in the future, you'll need to get financial advice again and pay an advice fee.

Freehold

The most common form of home ownership. It means you own your house and the land it’s built on. You don’t need to pay ground rent but you’re solely responsible for maintaining your property.

Further advance

If you have equity release, you can sometimes increase the amount you borrow later on. This is called a further advance or additional borrowing. With our lifetime mortgage, we may be able to lend you more money if your home goes up in value or you didn’t borrow the maximum amount to begin with.

Guaranteed inheritance protection

Taking out a lifetime mortgage will reduce the amount of inheritance you can leave. If you want to be sure of leaving something for your loved ones an Guaranteed Inheritance protection allows you to safeguard a percentage of your home's value for inheritance purposes. Bear in mind that it’ll reduce the overall amount you can borrow. With our lifetime mortgage this feature is called Inheritance guarantee.

Home reversion

With this type of equity release you can sell up to 100% of your home to your provider. In return, you’ll receive a tax-free lump sum and be able to live  in your property as a tenant. Like a lifetime mortgage, the plan ends when you die or go into long-term care. At this point your provider gets a percentage of the value of your home – the rest is paid to your beneficiaries.

Inheritance guarantee

Our lifetime mortgage offers you the option to set aside a percentage of your home’s value. This means you’ll still be able to leave some money behind for the people that are most important to you. Just bear in mind that it’ll reduce the overall amount you can borrow and inheritance will still be reduced. You must decide whether to take this option at the time you take out the lifetime mortgage. It cannot be added at a later date.

Interest and interest rates 

When you take out a lifetime mortgage, an interest rate will be applied to the money you borrow. Your interest rate is calculated based on the information in your application. Interest is charged on your initial loan amount as well as on the interest already added each year. 

Because you don’t have to make monthly repayments on a lifetime mortgage, the interest means the total amount you owe will build up each year.

With our lifetime mortgage your interest rate is fixed for life. If you take out any additional borrowing later on, it may have a different fixed interest rate to your original loan.

Interest-only lifetime mortgage

With this type of equity release, you’ll repay the interest on your lifetime mortgage each month so the amount you owe doesn’t grow. When your plan ends, the original sum is paid back to the provider.

Key Facts Illustration (KFI)

A Key Facts Illustration is a document you are provided with when obtaining quotes for equity release. It informs you of the terms, conditions, costs and key information about the product. The KFI will help you compare and contrast different plans when shopping around for equity release.

Later life lending

A term covering a range of borrowing options for homeowners, usually over the age of 55. It includes equity release and retirement mortgages.

Leasehold

With leasehold ownership, a property is yours for as many years as are left on the lease. Usually, a freeholder owns the building or land the leasehold property is on. This means it’s more common for flats to be leasehold properties, rather than houses or bungalows.

Lender

The company, firm or provider offering the loan or lifetime mortgage. 

Lifetime mortgage 

Where you secure a loan against the value of your home, letting you access some of the cash  tied up in your property without having to move. If you're a homeowner aged 55 or over, you can apply for a lifetime mortgage, through a specialised equity release adviser.

When you pass away or go into long-term care, the loan and interest is usually paid back using the money from the sale of your home. A lifetime mortgage is the type of equity release we offer.  

Loan to value (LTV)

The amount of money you can borrow against the value of your home shown as a percentage. So, if your home is worth £200,000 and the LTV is 20%, you can borrow £40,000. 

Lump sum lifetime mortgage

A popular type of equity release where you can borrow a single one-off lump sum.   

Negative equity

This refers to a situation where the amount you owe exceeds the property's value, If your property is in negative equity and it needs to be sold to repay your loan due to your death or moving into long-term care, there will be no proceeds from the sale of the property. This means there may be nothing left to inherit unless you have chosen an Inheritance Guarantee. Additionally, there may be no proceeds left to cover care costs.

No negative equity guarantee

When your lifetime mortgage ends, if your home is worth less than the amount owed, this guarantee means your beneficiaries won’t have to pay back the difference. We offer this guarantee on all our lifetime mortgages. So you’ll never have to pay back more than the best price your home can reasonably be sold for.

Power of attorney (POA)

A Power of Attorney is a legal document, which lets you choose one or more people who can act on your behalf as a public guardian. Each person is known as your Power of Attorney. If you're in a position where you can't make decisions or don't want to, your power of attorney can step in.

The document gives them legal authority to help with property and financial affairs or health and welfare decisions.

Do I need a Power of Attorney?

Provider

Another name for a company or lender offering equity release.

Repaying your lifetime mortgage

The lifetime mortgage must be repaid in full within 12 months of the date you (or both of you if it's a joint loan) pass away or leave the property permanently for long-term care.

For most people, repaying your lifetime mortgage loan means selling the property to raise the funds. If you can raise the funds by other means we can usually accept this instead, allowing the property to remain in your ownership.

A guide to repaying your lifetime mortgage

Solicitor

A solicitor will cover the legal ins and outs of equity release for you, such as conveyancing and making sure you’ve had financial advice, but, they're only required at the time of setting up a lifetime mortgage. Solicitors will charge you for their legal services.

Tax-free

When you take out equity release, the lump sum you get is tax-free, so you won’t have to pay Income Tax or Capital Gains Tax on it. However, it's important to bear in mind that although the lump sum is tax-free, taking equity release could affect your tax position.

Underwriting

When you apply for equity release, an underwriter working for the provider will review and assess your application. They’ll weigh up the risks based on the information you’ve given – sometimes they might need to ask you for more information. Once they have everything they need, they’ll decide whether it’s possible for the provider to offer you equity release.

Valuation

When an equity release provider arranges for a surveyor to value your home. This is to make sure it’s a type of property they can offer you equity release on and to check how much it’s worth.

Voluntary repayments

Some lifetime mortgages will let you pay back a percentage of your original loan each year without penalties such as early repayment charges.

With our lifetime mortgage, the maximum you can repay each year is 10% of your total loan amount - this doesn't include any interest that's built up. The minimum you can repay each time is £50.

This option is only available if you applied for a lifetime mortgage from 28 April 2014.

If you’d like more information about how voluntary partial repayments work, including how to start making repayments, we have a guide titled 'A Guide to Voluntary Partial Repayments'.

If you have a Lifestyle Flexible Advantage lifetime mortgage you also have the interest-servicing feature. When you make repayments that fully or partially cover the interest in your current policy year, Aviva applies an uplift - a percentage boost - to your repayment. The specific uplift percentage is shown in your Key Facts Illustration (KFI) and Offer documents. If you'd like more information about how interest-servicing voluntary partial repayments work, we have a guide which you can download here.

Welfare benefits

Welfare benefits are provided by the government, and are designed to give financial support for individuals and families.  In some cases, whether or not you can claim them depends on your household income and savings.  Taking out equity release may mean you'll no longer be eligible for some or all of these benefits.

Will

A will lets you set out what will happen to your money, possessions and property (also known as your estate) after you pass away. It’s a legal document that must be signed and witnessed by two people.

When you die, your house will usually be sold to repay the amount taken out through equity release. Any money left over goes to the people named in your will.