Equity Release Jargon Buster Part 1

Although we try to use plain English where possible, our A to Z guide should clarify some of the most commonly questioned words and phrases about equity release.

Here at Harbour Equity Release, we want to be sure you are clear about the equity release process so you are able to make an informed and confident decision about the choices you make.

Although we try to use plain English where possible, our A to Z guide should clarify some of the most commonly questioned words and phrases about equity release.

1 – AER (Annual Equivalent Rate)

Shows the rate of interest earned in a year on savings or investments. The higher the AER, the better the return. All adverts for interest-bearing savings accounts quote the AER, so you can compare returns.

2 – APR (Annual Percentage Rate)

Shows the overall cost of borrowing on a credit card or loan. Generally, the lower the APR, the better the deal for you. Use it to compare different credit and loan offers. 

3 – Compound Interest or roll up of interest

Any interest you owe is added to the original amount that interest is calculated on. You are effectively paying interest on interest. Therefore, the balance owed will increase more quickly year on year. 

4 – CPI (Consumer Price Index)

Measures the changes in price levels of a selected sample of everyday items and services. Lenders will look at changes in the CPI to determine amendments to the interest rates of variable rate equity release plans. 

5 – Disbursements

The charges that solicitors pass on to their clients from third parties. These charges are in addition to the basic fee charged by most solicitors; such as mining surveys and the Land Registry. The charges for these services are invoiced to you as disbursements. 

6 – Downsizing

Downsizing is when you sell your home, to buy a smaller one, or one that is of lower value. This is a method of releasing any money tied up in your property, and can often be an alternative to equity release. 

7 – Drawdown

A drawdown plan is a type of lifetime mortgage that allows you to access the funds you release more flexibly over time, as and when you need them. You take a lump sum of cash to meet your immediate needs while benefitting from a reserve facility to draw from in the future. This can give you peace of mind while also saving you money by reducing the amount of interest that you pay. 

8 – Early Repayment Charge

If you choose to, there is the option to repay your lifetime mortgage at any time. However, if you decided to do so there could be a fee to pay in addition to paying back the money you released.

Generally speaking early repayment charges can be ‘defined’ or ‘gilt based’.

If they are ‘defined’ charges, the percentage charge which applies each year will be clearly set out and will typically reduce over time.

If the charges are ‘gilt based’ they will vary during the term, between a defined minimum and maximum figure, to reflect changes in the interest rates on government borrowing or ‘gilts’.

There will be certain circumstances in which an early repayment charge will not apply, which will vary dependent on the plan selected.

Should you have received advice about an equity release plan, please see your Key Facts Illustration (KFI) for more details.

9 – Equity

The percentage of your home you own, over and above any mortgage that may be outstanding on the property. 

10 – Equity Release Council

The Equity Release Council (ERC) are an industry body responsible for ensuring its members act with integrity and transparency in dealing with its customers. Harbour Equity Release is a member of the Equity Release Council. 

11 – Equity Release

This is a way to access the money tied up in your home to help fund your retirement. There are two types of equity release plan: home reversion and lifetime mortgage. 

12 – Estate

Your estate is anything you own when you die (after any borrowing has been deducted). Please remember, equity release will reduce the value of your estate. 

13 – Fixed Interest Rates

Fixed interest rates, when considered in relation to equity release, are interest rates which are fixed for the life of the plan. 

14 – Variable rate plans

Generally offer a lower rate of interest initially but variable rates can vary year on year, based on changes in market conditions. 

15 – Home Reversion Plan

This type of equity release plan works by you selling part, or all of your home to a reversion plan provider. 

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Equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. To understand the features and risks ask for a personalised illustration.

Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.

Things to consider

We provide informative impartial advice covering your options as well as explaining how equity release will affect potential inheritance and how your entitlement to means-tested benefits could be affected now or in the future.

We provide initial advice for free and without obligation. Only if you choose to proceed and your case completes would a typical fee of £1,695 be payable.

Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care.

If you would like to discuss your plans or just want an informal chat please feel free to either give us a call on 0800 085 1786 or 07905 585670, email us enquiries@harbourequityrelease.co.uk.

Harbour Equity Release is based in Poole, Dorset. As well as providing a national service via the telephone or via video conference we also serve the local surrounding area on a face to face basis including Wimborne, Broadstone, Bournemouth, Christchurch, Wareham, Swanage, Weymouth etc.

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