R05 Equity release: free practice questions

1. Question 1 of 5

   What is the key difference between a lifetime mortgage and a home reversion plan?

   Option A: A lifetime mortgage sells part of the home, while a home reversion is a loanOption B: A home reversion is only for under 55sOption C: Both involve selling the whole home to the provider straight awayOption D: A lifetime mortgage is a loan on the home; a reversion sells part or all of it

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   The answer is D: A lifetime mortgage is a loan on the home; a reversion sells part or all of it

   With a lifetime mortgage the homeowner keeps ownership and borrows against the home. With home reversion, part or all of the home is sold in return for a lifetime tenancy.

   Why the other options are wrong

   A

   That's the wrong way round: a lifetime mortgage is a loan and reversion involves a sale.

   B

   Home reversion isn't for under-55s; it's for older homeowners.

   C

   Neither requires selling the whole home immediately.

2. Question 2 of 5

   What is a particular risk of a roll-up lifetime mortgage?

   Option A: Interest must be paid every month from the borrower's pension incomeOption B: The debt can grow fast, as interest compounds until death or moving into careOption C: It cannot be used by homeowners over 55 or their partnersOption D: The home must be sold within five years of taking out the lifetime mortgage

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   The answer is B: The debt can grow fast, as interest compounds until death or moving into care

   With roll-up, interest is added to the loan rather than paid, so the debt can grow quickly. Early repayment charges can also be very expensive, and means-tested benefits may be affected.

   Why the other options are wrong

   A

   With a roll-up mortgage, interest is added to the loan rather than paid monthly.

   C

   Lifetime mortgages are designed for older homeowners, typically over 55.

   D

   There's no rule that the home must be sold within five years.

3. Question 3 of 5

   Una lives alone and needs to move permanently into a care home. Why is a standard lifetime mortgage or home reversion unlikely to fund her care home fees?

   Option A: Standard equity release ends when she moves into permanent careOption B: Equity release is banned from being used to pay for care costsOption C: She is too old to qualify for any equity releaseOption D: Equity release can only be used to pay for home repairs

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   The answer is A: Standard equity release ends when she moves into permanent care

   Standard equity release ends on moving into permanent residential care, so it suits care at home or where a partner remains. Newer buy-to-let style loans may let a single person keep and release equity from the property.

   Why the other options are wrong

   B

   Equity release isn't banned for care costs; standard plans simply end on moving into care.

   C

   Age isn't the barrier; the plan ends when she moves into permanent care.

   D

   Equity release money can be used for many purposes, not just repairs.

4. Question 4 of 5

   Which statement about home reversion plans is INCORRECT?

   Option A: The customer usually receives well below full market value for the share soldOption B: The customer remains responsible for insuring and maintaining the propertyOption C: Structural changes need the provider's permissionOption D: Plans are easy and cheap to reverse at any time

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   The answer is D: Plans are easy and cheap to reverse at any time

   Home reversions are difficult to reverse, usually requiring full market value to be paid. Customers receive something like a third of value, keep insurance and maintenance duties, and need permission for structural changes.

   Why the other options are wrong

   A

   This is correct: customers usually get well below full market value for the share sold.

   B

   This is correct: the customer stays responsible for insurance and maintenance.

   C

   This is correct: structural changes need the provider's permission.

5. Question 5 of 5

   Colin needs to move permanently into a care home, while his wife Mary will stay in their jointly owned house. Could equity release help fund his care?

   Option A: No, equity release can only be used for home repairsOption B: Yes, but only through a home reversion plan sold to the councilOption C: Yes, as the arrangement continues while Mary remains in the homeOption D: No, equity release always ends when either owner moves into care

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   The answer is C: Yes, as the arrangement continues while Mary remains in the home

   Standard equity release ends when a single homeowner moves into permanent residential care, so it can't fund that. It can fund care at home, or care for one partner where the other remains in the home, as here.

   Why the other options are wrong

   A

   Equity release money can be used for many purposes, including care.

   B

   Home reversion plans are sold to providers, not councils, and a lifetime mortgage could also be used.

   D

   The arrangement ends when the last occupant moves into care, not when one partner does.

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