Glossary of terms found in equity release and retirement planning schemes in the UK

Here are explanations of some of the terms you might come across:

Annuity an annuity converts a lump sum into regular income, which is taxed
APR annual percentage rate
- the APR includes important factors such as:

  • the interest rate you must pay;
  • how you repay the loan (length of loan agreement [or term], frequency and timing of instalment payments and amounts of each payment );
  • certain fees associated with the loan; and
  • certain compulsory insurance premiums (for example, payment protection insurance)

Arrangement Fee a commitment or administration fee usually payable to the lender to reserve the mortgage funds
Compound Interest the interest owed on a lifetime mortgage - it is based on the original loan and on the accumulated past interest
Equity Release Scheme a scheme that lets you raise money from your property - as either a lump sum or regular income, or both - and at the same time gives you, and a partner, the right to remain living there until you both die or move into long-term care
Financial Services Authority (FSA) the independent body that regulates Financial Services in the UK UK
Financial Services Compensation Scheme the FSCS can pay compensation if a member firm is unable, or likely to be unable, to pay claims made against it
Home Reversion Plan an equity release scheme where you sell all or part of your home in return for a cash lump sum, a regular income, or both
Keyfacts Document important information for you from your financial adviser, set out in a format specified by the FSA, so you can compare service, product and costs (make sure you get them and read them
Legal Fees fees you pay to your solicitor for their services to you
Life Expectancy how much longer you're expected to live
Lifetime Mortgage an equity release scheme where you take out a loan secured on your home, which is repaid by selling your home when you die or go into long-term care
Lump Sum a one-off payment, as opposed to regular income
Negative Equity the amount you owe the lender is more than the value of your home - this means you may end up owing more than you borrowed
Retirement Planning the gathering together of financial product information, including government tax, IHT, pensions, investments and property values by a specialist broker - to inform the customer of the best way to plan for the rest of their life