Explanation of Terms

Compound Interest/rolled up interest:

Some lifetime mortgages will have interest added to the loan and then future interest is charged on the amount plus previous interest added. This is, in effect, interest on interest.

Early repayment charges:

If you decide to pay back the amount of a loan taken out on a lifetime mortgage early, some providers may charge a fee for this. The title of these schemes - lifetime mortgages - indicates that they are designed to last for the rest of your life and paid off after your death. If you want to cut short the agreement, providers may charge you to compensate in part for the accrued money they have lost.

Adviser:

Advisers make recommendations on financial products. It is important to recognise the difference between advisers who are restricted to giving advice about just one lender or panel of lenders and those who can provide advice on any financial products lender in the market.

This kind of adviser is called an Independent Financial Adviser, which means that they are free to provide advice from any lender, so that they can offer you the most suitable or competitive product.

Estate:

This is the name for everything that you own, which may pass on to your beneficiaries when you die. This can include your home, any savings or investments and personal possessions.

Fixed rate:

This means that the interest rate on your borrowings will never change throughout the period of the loan. The rate is fixed at a certain level and does not change, no matter what may happen in the future to the interest rates set by the Bank of England.

FSA:

This stands for Financial Services Authority, which is the organisation responsible for regulating financial advice, including equity release plans. The FSA were established to ensure that consumers are fairly treated and that all advice given is efficient and accurate.

Independent Financial Adviser:

Independent financial advisers are those who can provide advice on any financial products lender in the market. This means that they are not restricted to giving advice about just one lender or panel of lenders - so that they can offer you the most suitable or competitive product.

Inheritance/Estate/Beneficiaries:

On your death, if you have made a will, your estate will be distributed in accordance with your wishes. Inheritance tax (IHT) is charged at 40% on the value of your estate exceeding the IHT nil rate band, which is £312,000 for the 2008/09 tax year. Any unused IHT nil rate band automatically passes to the surviving spouse, with individuals also being able to claim any unused IHT nil rate band for a deceased spouse. In effect this means for a married couple in the 2008/9 fiscal year, there would be an IHT free limit of £624,000.

Interest:

These are charges which are applied to lifetime mortgages. The charges are made either monthly or annually depending on the details agreed for each individual plan.

Lifetime lease:

If you were to choose a home reversion plan to release equity from your house, you would be granted a lifetime lease. This would allow you to live in your home rent free, or for a nominal rent, for the rest of your life.

Lifetime mortgage:

This is a loan secured on your home. There are no monthly payments to make on the loan until the last surviving partner dies, or goes into long term care.

No negative equity guarantee:

This means that you will never owe more than the value of your property, whatever happens to property values in the future. The guarantee comes with all SHIP (Safe Home Income Plans) approved plans.

Reversion plan/Company:

All of your home, or just a percentage of it, is sold to a reversion company. You will receive a cash lump sum and a lifetime lease which will allow you to live in your home for the rest of your life.

Rights to reside:

It is possible, having completed an equity release, to allow somebody else to move in with you subsequently. However, the status of the incoming person would have to be considered. If you wish to add somebody new to your title deeds (for example, if you re-marry), you would need to ask for the equity release provider's permission to do this and also to add them on to the equity release. If the incoming party is younger than 55-60, it may not be possible to do so. If you don't want to add the new occupier to your deeds, or if they are too young to become party to the equity release, they would be required to sign an Occupier Waiver. As the effect of the Waiver is to require the new party to leave the property at the point that you no longer live there (e.g. due to death or because you have moved into long-term care), they would be required to take separate and independent legal advice from you to ensure that they understand the risks of signing.

SHIP:

This stands for Safe Home Income Plans. SHIP is an organisation which is dedicated to the protection of equity release plans. Membership of SHIP is voluntary, but lenders who are members of SHIP follow a code of conduct which guarantees customer safety.

State benefits:

If you decide to release cash from your home your state benefits may be affected. Your Bright Equity Release Solutions adviser will discuss this with you, but you will also need to seek advice from the Department of Work and Pensions.

Variable rates:

In some cases lifetime mortgages are subject to variable rates of interest. This means that the rate of interest applied to the money which you borrow against your home will fluctuate. This rate may go up or down, depending on the base rate set by the Bank of England or the Retail Prices Index.