Here at The Right Equity Release we’re big fans of speaking in plain English and tend to prefer this over all that jargon filled waffle. In our opinion there is nothing worse than a load of financial acronyms, all designed to impress rather than help. So, in that vain we thought it might be useful to share the top 5 Equity Release terms alongside a straightforward explanation for each
If we’re talking equity release, which of course we are, it would seem a little foolish to leave this one out. It’s all too easy for advisers to throw around the word ‘equity’ without really stopping to think about the fact that for most people this isn’t a term we generally use in day-to-day language.
Equity is the value of your assets (your home) minus any related debts (existing mortgage)
Your Asset (home) is worth £250,000
Your Debt (current mortgage) is £100,000
Your Equity is £150,000 (not all available for equity release)
Equity Release is the process of unlocking this Equity to provide you with tax-free cash, without having to sell your home.
2. Tax-free cash
Now, this might sound obvious but it’s so important to stress that the money you free-up through equity release is completely tax-free.
Whether you choose to release one lump sum or drawdown several smaller amounts you will pay no tax at all on any of it. The money is then yours to spend as you wish!
3. No Negative Equity Guarantee
Chances are you’ve heard this phrase bandied around a fair bit and you may well have a fair idea what it means. It’s definitely worth pointing out because it’s their for your peace of mind and protection.
A No Negative Equity Guarantee ensures that even in the event of a fall in future house prices you will never owe more than your home is worth.
This guarantee is enforced by the governing body of the equity release industry – The Equity Release Council – and as members you can trust that we only ever offer Equity Release Plans that carry this guarantee. You’re in safe hands!
4. A Lifetime Mortgage
There are several options when it comes to equity release plans however a Lifetime Mortgage is by far the most popular.
A Lifetime Mortgage is a loan that is secured against the value of your property and in this way it is similar to a standard Mortgage. Unlike a standard Mortgage, however, you make no monthly repayments during your borrowing period. As the name suggests a Lifetime Mortgage is just that, it has no fixed term and ends only when you die or move into long term care.
Interest typically ‘rolls up’ and thus increases over time. However, the increased flexibility of plans now means that there are options for some form of repayment, such as Interest-Only and Voluntary Partial Repayment, which can help reduce the future balance.
The other option is a Home Reversion Scheme whereby you sell all or part of your home
to a lender and are able to live in the property until you die or move into long term care.
5. Drawdown facility
Equity Release plans that offer a drawdown facility could be a great way to reduce the amount of interest that accrues over the lifetime of the plan.
With a drawdown facility your lender agrees the total amount you wish to borrow, say £125,000, and this amount is then available for you to access as and when you need it. You might only need to drawdown £25,000 initially and leave the further £100,000 for a later date. The good news here is that you are only charged interest on the money as you drawdown each amount.
If you have found any of the above definitions useful and you’d like more plain speaking support we would love to help.
If you have any questions about equity release,
please get in touch with us on 0800 612 6755.
Thanks for reading, we look forward to hearing from you.