Equity Release - Aviva Training Material Flashcards
What is equity release?
Equity Release is a means of releasing equity in a property, but which allows the borrower to remain
in their home.
What is a Lifetime Mortgage?
• The generic term that applies to a wide range of
products targeted at elderly borrowers such as
home income plans, cash plans, capital drawdown
schemes and open‐ended mortgages.
What is a home reversion plan?
Enables a homeowner to sell all or a proportion
of their property to a reversion provider in order
to raise funds, with the customer continuing to
live in the property, as a tenant, or until they die
or it is permanently vacated. This is NOT a mortgage.
What is the difference between a Defined Benefit Pension Scheme and a Defined Contribution Pension Scheme
Defined Benefit or Final Salary Pension Scheme - Provides a guaranteed minimum pension based
on the individual’s wage/salary in the last few
years of employment, the number of years of
service and an accrual rate specified by the
scheme.
Defined Contribution Pension Scheme -
• Does not provide a minimum guaranteed
pension. It is a money purchase scheme in which
the eventual pension will depend entirely on
investment performance and the condition of
the financial markets when money is taken from
the arrangement.
How does a Cash Plan with rolled up Interest work?
• An open‐ended interest only mortgage on which no
payments are made and the interest rolls up until
the borrower dies or goes into long term care.
How does a Shared Appreciation mortgage work? Do they exist today?
A plan that enables the customer to raise capital
and make no payments. The lender foregoes
interest completely but takes its income (profit)
from a share in the increase in the property value
that has occurred between creating the mortgage
and the redemption date. These are virtually unknown today.
Why would people want to release equity in their home?
They may have alot of equity in there home (it’s increased in value and they have paid off the mortgage) but little income in retirement from a pension.
Some may need to liquidate capital to replace a car, repair a home, or for lifestyle.
What demographics and economic factors have increased the demand for equity release?
An ageing population with little or no pension provision apart from state pension. The move from defined benefit (final salary) pensions schemes to defined contribution schemes. Lifestyle choices and aspirations meaning people are spending more and requiring more money
What is a Home Income Plan?
Customers would borrow money and generate income by investing in a long term annuity. This would provide an income for life. These were discredited in the 90s as the investments did not pay off the mortgage.
What are the two type of Life time mortgage cash plans?
One where no monthly payments are made and one where the interest element is paid to the lender.
Is a Home Reversion Plan a mortgage?
No a home reversion plan is where the homeowner sells all or a proportion of their property and lives in the property as a tenant. involves a Legal Conveyance and is Not a mortgage. The customer will never get a market value for the property they cannot raise the full value of the property.
