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Equity Release > Redmill Week 1 > Flashcards

Redmill Week 1 Flashcards

1
Q

What does the term ‘equity’ mean?

A

Equity means ‘ownership’ in the property

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2
Q

What is meant by the term ‘equity release’

A

Equity release is releasing equity from the value of the property

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3
Q

If the property is owned without a mortgage, how much equity would one be said to have?

A

100% equity

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4
Q

Name 4 reasons one may consider an equity release product?

A
  • Repaying debts
  • Funding home improvements
  • Making gifts
  • To provide for costs of long-term care
  • Lifestyle improvements
    Increasing income
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5
Q

How is the state pension funded?

A

The state pension is funded by the working population paying NIC

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6
Q

What are 3 reasons one may not want an equity release policy?

A
  • Reduces inheritance
  • Impacts means tested benefits
  • Difficult to come to terms with not owning 100% of property
  • High costs
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7
Q

What is a lifetime mortage?

A

An open-ended loan against the property which is repaid on death, sale of property or entering long-term care

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8
Q

If one takes out a lifetime mortgage, can they remain in the property rent free?

A

Yes

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9
Q

How is the debt of a lifetime mortgage secured on a property?

A

Against the value of the property on a ‘1st Legal Charge’

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10
Q

What is the usual remaining lease required for a lifetime mortgage is the property is a leasehold?

A
  • 80 Years, or
  • 155 years minus the youngest customers age
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11
Q

If a lifetime mortgage customer fails to maintain the property, what may happen?

A

The cost of repairs can be added to the debt

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12
Q

If interest on a lifetime mortgage is rolled up, on what basis will it be?

A

On a compound basis

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13
Q

Which two factors determines how much a lifetime mortgage customer can borrow?

A
  • The age of the customer
  • Property value
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14
Q

Is the LTV based on the younger or older life?

A

The LTV is usually based on the younger life

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15
Q

What does a drawdown lifetime mortgage allow you to do?

A

Allows for some money now and some later on, with no interest charged until the money is taken.

It allows for a pre-agreed cash reserve that the customer can draw on

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16
Q

Who could a drawdown lifetime mortgage be suitable for?

A

Those who are ‘asset rich and cash poor’

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17
Q

What is an Enhanced Lifetime mortgage?

A

It offers a higher LTV for those with worse health, although it comes with higher interest rates

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18
Q

What is a home income lifetime mortgage?

A

A lifetime mortgage that provides an income for the remaining life - like an annuity

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19
Q

What is a shared appreciation mortgage (SAMs) and why are they now a legacy product?

A

It involved the provider to take a share in the future growth of the property.

They are now legacy products as it meant in a property boom there would be significantly more owed to the lender.

20
Q

What is the usual type of interest rate for lifetime mortgage policies?

A

Fixed interest

21
Q

How much of an overpayment may be paid on a mortgage without penalty?

A

10%

22
Q

Who may a payment holiday be offered to?

A

A payment holiday may be offered to those who have made overpayments in the past

23
Q

Who is a secured advance covered by?

A

Mortgage Credit Directive (MCD)

24
Q

Who is an unsecured advance covered by?

A

Customer Credit Act of 1974 and 2006

25
Q

To be covered by the SHIP standards allowing a transfer from one to provider to another, what do you need to ensure?

A

You need to ensure that the provider is a member of The Equity Release Council

26
Q

What does ‘equity of redemption’ mean?

A

It gives the legal right from an individual to settle the debt and clear the legal charge

27
Q

What is a no negative equity guarantee

A

It ensures that the debt will never be more than the full value of the customers equity

28
Q

What is guaranteed inheritance?

A

A guarantee allowing a percentage of the property value at death to be inheritable.

29
Q

What is a home reversion policy?

A

A home reversion policy is the sale of part or all of the property in return for a lump sum

30
Q

What is the relationship between the age of a customer and percentage of the property value a customer will receive in a home reversion plan?

A

The older the customer, the higher the percentage received.

There is a positive correlation

31
Q

When can a customer with a home reversion plan stay in the property until?

A

Until they enter LTC, sale of property of death

32
Q

Which 4 things means that an arrangement is not a home reversion plan?

A
  • Occupier is not an individual
  • Land is to be used as letting to someone not related to the owner or beneficiary under the trust who owns it
  • The land is primarily used for business purposes
  • Land is overseas
33
Q

What happens when under a home reversion policy the whole property is sold?

A

The provider becomes the owner and the customer becomes a tenant.

34
Q

When may a minimum inheritance guarantee be good for a home reversion policy

A

If someone dies shortly after taking out the policy

35
Q

Is the equity released from the property in both a home reversion and lifetime mortgage policy taxable or tax free?

A

Both are tax free

36
Q

How do lifetime mortgage providers fund operations?

A
  • Through deposit taking
  • By offering annuities
  • From the markets
37
Q

Which arrangement would release the highest possible equity for a health life, lifetime mortgage or home reversion?

A

A home reversion plan will release the highest possible equity

38
Q

What is the usual minimum age for a home reversion plan and a lifetime mortgage?

A
  • Home reversion is usually 55+
  • Lifetime mortgage is usually 60+
39
Q

What is the average defined contribution pension size?

A

Around £30,000

40
Q

How much can be received tax-free each year by taking in a lodger?

A

£7,500

41
Q

Will taking out an equity release plan reduce inheritance?

A

Yes

42
Q

Which type of properties may a bank/building society not consider equity release on?

A
  • Former local authority properties
  • Those too close to commercial property
  • Property with the presence of Japanese knotweed, subsidence, structural defects or a history of flooding
43
Q

Is any further legal work required to access the ring-fenced cash in a drawdown lifetime mortgage?

A

No further legal work is required

44
Q

When are interest rates set for drawdown arrangements?

A

At each subsequent drawdown

45
Q

What is the minimum period for a home reversion arrangement to be used as a dwelling for?

A

20 Years

Equity Release (4 decks)

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