Glossary

A glossary of some of the common terms used when discussing later life lending.

• Applicants
  Joint or single applicants. Must be UK residents.
• Capital repayment
  Monthly repayments are made up of the interest and some of the capital. At the end of the agreed term if all repayments are made the original amount borrowed will have been repaid.
• Early repayment charges
  Fees payable to the lender if the applicant wishes to repay some or all of the amount borrowed during an agreed period as defined in the mortgage offer.
• Equity
  The difference between the value of a property and any debts secured against the property.
• Equity release
  The ability for homeowners to release some of the equity in their home tax-free.
• Equity Release Council
  The industry body for the UK's equity release sector.
• Inheritance protection guarantee
  A feature available with some Lifetime Mortgages. It enables the borrower to allocate a percentage of the property for inheritance purposes.
• Inheritance tax
  A tax payable of on the estate of someone who has died. Currently there is no inheritance tax payable if:
  • The value of the estate is less than £325,000.
  • The value above £325,000 is left to a spouse, civil partner, charity, or a community amateur sports club.
  • If the property is gifted to children or grandchildren then the threshold can increase to £500,000. More information can be found in Inheritance tax and related manuals.
• Inheritance tax rates
  The standard rate is 40%. This is only paid on the amount above the threshold. More information can be found at Inheritance tax rates.
• Interest only
  Borrowers repay just the interest each month. At the end of the agreed term the borrowers must repay the outstanding capital balance.
• Interest roll-up (compounding interest)
  Every month, interest is added to the amount owed. This is not charged against the initial amount borrowed, but instead charged against the initial amount borrowed plus the preceding period's interest. This can lead to the amount owed growing quickly if optional payments are not made.
• Interest servicing
  All Lifetime Mortgages from Equity Release Council members allow for optional payments to be made, subject to lender criteria. Some borrowers may choose to service the interest and limit the impact of compound interest.
• Later life lending
  A term used to describe several types of borrowing designed for customers, typically over the age of 55. Later life lending is comprised of traditional mortgages, retirement interest-only mortgages and equity release.
• Location
  England, Wales, Scotland, and Northern Ireland.
• Lifetime Mortgages
  Long-term loans secured against a property. They are repaid on the death or entry into long-term care of the last borrower, usually by the sale of the home.
• No-negative equity guarantee
  At the end of the term the amount owed cannot be more than the value of the property, therefore leaving no debt to the estate.
• Retirement Interest-Only Mortgages
  Long term loans secured against the property. The interest must be repaid monthly, with the capital balance repaid on the death or entry into long-term care of the last borrower, usually by the sale of the property.
• Traditional mortgages
  Loans secured against a property. They are repaid at the end of the agreed term.