Equity release glossary
Equity release can spring up some jargon. We want to make sure you understand what these terms mean, so that you’re confident about your decision.
Published: 06 Feb 2024
The language of equity release can be confusing, so here's a simple guide to some of the key terms.
A to Z of Equity Release terms
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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.
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, we’ll put you through to an equity release adviser. They can only give you advice on our lifetime mortgage – the type of equity release we offer. The other type is called home reversion. It’s less popular than a lifetime mortgage and we don’t offer it anymore.
To find an independent adviser who can give you advice on equity release sold by a range of different providers, head to unbiased.co.uk.
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.
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.
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.
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.
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.
We calculate interest daily on our lifetime mortgage, but we only add the compound interest to your balance once a year.
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 providers 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 also let's you setup a cash reserve facility which allows you to take smaller amounts when you need them.
Each time you make a withdrawal, 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.
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.
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.
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:
- 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
- want to borrow £15,000 or more
- live in your house permanently
- have finished paying your mortgage (or able to pay off the rest of your mortgage with the money you get from your lifetime mortgage).
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 lets homeowners over 55 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 Council
An independent regulator focused on protecting the rights of equity release customers. 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.
When you die, your estate refers to everything you own. This could include your house, money, savings, and possessions.
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. You’ll need to pay a fee for their services – speak to your financial adviser to find out how much they charge.
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.
If you have equity release, you can sometimes increase the amount you borrow later on. This is called a further advance. 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
A feature often offered on lifetime mortgages. It lets you ringfence a percentage of the value of your home to pass onto your beneficiaries. Bear in mind that it’ll reduce the overall amount you can borrow.
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.
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I J K
Our lifetime mortgage lets you 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 will unlock and inheritance will still be reduced.
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 added each year.
Because you don’t 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.
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.
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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.
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.
The company, firm or provider offering the loan or 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 aged over 55, you can apply for a lifetime mortgage.
When you pass away or go into long-term care, the loan and interest is paid back is 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 plan where you can borrow a single one-off lump sum.
Benefits provided by the government. 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 your benefits.
No negative equity guarantee
When your plan 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)
Power of attorney, or lasting power of attorney (LPA), lets you give someone legal permission to make decisions about your finances or health if you’re no longer able to make them yourself.
Another name for a company or lender offering equity release.
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Q R S
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. Solicitors will charge you for their legal services.
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.
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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.
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.
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.
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.
Get specialist equity release advice
Take your first step by arranging a call with a UK-based equity release adviser. You don’t have to commit to anything, it’s just to see if it’s an option for you. And you won’t pay a separate advice fee. Instead, we'll make a commission payment to the adviser on completion of your loan. Here are two ways to get in touch.
Call us free
Ring now and make an appointment with an equity release adviser.
0800 141 3493
- Monday to Friday: 9:00am - 6:00pm
- Weekends and Bank Holidays: Closed
Ask us to call you
Give us your name and number, and an adviser will call you. You can pick a chosen day and whether morning or afternoon is best.Request a call back
Your call will be answered by the Aviva Equity Release Advice team, who can provide information and advice on Aviva’s lifetime mortgages only. They're authorised and regulated by the Financial Conduct Authority.
Calls to 0800 or 0808 numbers from UK landlines and mobiles are free. For our joint protection, calls may be recorded or monitored, and saved for a minimum of 5 years. Our opening hours may be different depending on which team you need to speak to.