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Jargon Buster
Finance - LoansThere are so many types of loans available now that the loans jargon in this area is huge. Bearing in mind that most loans are aimed at the simple homeowner offering more security, they have to also understand this loans jargon. No wonder many applicants fall foul of this loans jargon and accept terms that are shrouded in unnecessary complexity often hiding onerous and unfair terms that favour the lender. Everyone taking on a loan must try to at least understand the major issues of the loans jargon so that they are fully aware of the commitment they taking on.
Loans Jargon.ADVANCE - Loan from bank or building society in the form of a mortgage. APR - Acronym for Annual Percentage Rate, a basic rate of interest. Usually shown in brackets after the headline rate for a mortgage deal, the APR is meant to incorporate any additional payments beyond the interest rate, thereby indicating the true cost of the deal. ARRANGEMENT FEE - A fee you pay to the lender in return for a mortgage deal. This deal could be fixed, discounted or cashback. The fees are known as the: application fee booking fee completion fee reservation fee ASSURANCE - A term interchangeable with insurance but generally used in connection with life cover as assurance implies the certainty of an event and insurance the probability. Level Term - a policy that pays out on the event of death of the loan holder. It is level term because it will cover the same amount of loan debt throughout the repayment period. It is suited to interest only loans. Decreasing Term Assurance - a life assurance policy that pays out an amount if you die during an agreed period or the term of the policy. The amount of cover reduces each year. So, this makes it ideal to cover repayment mortgages where the amount you owe the lender reduces each year. Life - a life insurance policy specifically suited to mortgage or loan protection. Some of the premium goes towards life insurance for covering your loan in the event of the loan holder's death. BAILIFF - Official who repossess your possessions or house if you cannot keep up on your mortgage repayments subject to a court order having been granted. BASIC VARIABLE MORTGAGE RATE - Lender's standard rate of interest, which is variable because it can go up or down according to economic conditions. BENEFIT PERIOD - A time period over which the interest rate of a loan is discounted, fixed or capped, for example. BRIDGING LOAN - A temporary loan providing financial cover to bridge the gap between purchasing and selling a property. BROKER - An intermediary who will give advice and offer a range of mortgages. BUILDING SURVEY (FORMERLY FULL STRUCTURAL SURVEY) - A full inspection of the property, conducted by a chartered surveyor, who then writes a detailed report including any property defects. Suitable for any house, particularly older properties and those which have been poorly maintained. Also for properties which have been extensively altered or extended, or any property you may wish to alter or extend. BUILDINGS AND CONTENTS INSURANCE - This is combined insurance, which may be cheaper than one policy for buildings insurance and another separate policy for contents insurance. BUILDINGS INSURANCE - Insurance to cover any structural damage to your house. BUY TO LET - A mortgage designed for people who buy a property with the intention of letting it out. Largely similar to other mortgages, but the maximum loan to value (LTV) is usually lower. Other restrictions may also apply, such as minimum letting terms and rental income. CAP & COLLAR MORTGAGE - This is a mortgage that has both a top and bottom limit set for the interest rate. It is a very safe and risk free type of mortgage, as you are protected against interest rate rises above a certain point, but you are losing some of the potential gains if interest rates drop. CAPITAL - The amount of the loan on which interest is calculated. CAPPED MORTGAGE - Normally agreed for a fixed period of time, many lenders provide mortgages with an upper limit on the interest rate. If the standard interest rate is lower than the upper limit you will be charged the lower rate, but if the standard variable rate is higher you will be charged at the agreed rate. CASH BACK - Many lenders provide a cash incentive to borrowers that they can spend as they wish once the mortgage has completed. CAT MARKS/STANDARDS - Standing for charges, access and terms, CAT-marked mortgages must comply with benchmarks laid down by the Government. Different CAT marks apply for (discounted) variable rate and fixed or capped rate mortgages. The Government stresses that a CAT mark doesn't mean a mortgage deal is officially endorsed and for many people non-CAT-marked deals will be a better option. CCJ - County Court Judgement. A decision reached in the County Court which can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your records to say this. CERTIFICATE OF INTEREST - This is a document issued to the customer (on request) by UCB. It is our confirmation of the total interest charged for the financial year. The customer will normally send this to the Inland Revenue to claim tax relief. The IR needs the lender's confirmation of the amount of interest charged before considering giving the customer any tax relief. CHAPS - Clearing House Automated Payment System. A Payment Release through which the mortgage advance is sent to the conveyancer. CHARGE - The term used for the security that the lender relies on when granting a mortgage. CML - Council of Mortgage Lenders. Building societies and most banks and other lenders are members of this trade organisation. COMPLETION - The point when contracts have been exchanged and legal transfer of ownership on the property from seller to buyer is finalised. COMPLETION DATE - The point at which contracts have been exchanged and legal transfer of the property from the seller to the buyer is finalised. The buyer can take possession of the property from this day. CONCLUSION OF MISSIVES (Scotland) - The point at which buyer and seller are legally bound to the transaction. CONTENTS INSURANCE - Insurance to cover any loss or damage to your possessions. CONTRACT - Legally binding agreement between the seller and buyer of the property. CONVEYANCER - A specialist in the legal aspects of buying a house. This may be a solicitor but not all solicitors are skilled conveyancers, so be sure they undertake this type of work regularly as it is complicated and very important. CONVEYANCING - This is the legal work required for buying and selling a property. The conveyancing process essentially involves the transfer of "good title" or ownership from one party to another. It is a fairly complicated and longwinded process that involves untangling the legal jargon found in the title deeds, and checking the background of your property with the local authority and title searches. COVENANTS - Rules and regulations governing the property contained in its title deeds or lease. CREDIT SCORING - A lender's way of assessing whether you are a good risk to lend a mortgage to. CREDIT SEARCH - A check the lender makes with a specialist company to find out whether you have any County Court Judgements or a record of not paying loans, credit-card bills and so on. CREDITOR - An individual or institution to whom a debt is owed i.e. the Lender. CRITICAL ILLNESS COVER - Insurance that generally pays out a lump sum if you are diagnosed with a life-threatening illness or disease. DATE OF ENTRY (Scotland) - In Scotland, this is the same as exchanging contracts. DEBTOR - The person who owes money i.e. the borrower DECISION IN PRINCIPLE - An indication of the likely outcome of a mortgage application. This is not a formal offer but includes a credit check with a credit reference agency and an assessment of the stated information using our lending guidelines. Once this has been done, an application must be submitted. DECREASING TERM ASSURANCE - Life assurance that pays out an amount if you die during an agreed period or the term of the policy. The amount of cover reduces each year. So, this makes it ideal to cover repayment mortgages where the amount you owe the lender reduces each year. Decreasing term assurance is usually cheaper than level term assurance. DEFAULT NOTICE - A prescribed notice to be issued on default by a lender wishing to enforce a regulated loan under the Financial Services Authority. DEPOSIT - A sum paid to the seller when exchanging contracts, to guarantee that the sale will go ahead. DISBURSEMENTS - Costs such as stamp duty, Land Registry fees and search fees charged to the acting conveyancer or solicitor but then paid for by the purchaser. DISCOUNTED RATE - Many lenders offer discounted rates on the standard variable rate for an agreed period of time - normally one to two years - on mortgages. EARLY REPAYMENT CHARGES - Charges paid to the lender in compensation for lost interest if you redeem your mortgage ahead of schedule. This is to ensure that the costs that the lender incurs in setting up the mortgage are always covered. EARLY REPAYMENT PERIOD - A period of time that applies to certain types of loan during which a charge will be made if the loan is repaid in full or in part or its terms are varied at the borrower's request. ESTATE AGENCY FEES - The amount the estate agent charges the person selling the property. This is usually worked out as a percentage of the sale price, and may be negotiable. On a 4% fee, the estate agent selling the property for £60,000, would receive £2,400 ENDOWMENT MORTGAGE - On this type of mortgage only interest is paid on the loan to the lender during the term. At the end of its term, the mortgage is paid off with the proceeds of an endowment policy. EQUITY - This is the difference between the value of the property and the outstanding mortgage. EXCHANGE OF CONTRACTS - This is the point when both buyer and seller are legally bound to the purchase and sale of the property. FEUHOLD - Similar to freehold under Scottish Law. FIXED RATE - Most lenders offer mortgages on a fixed rate for an agreed period of time. Therefore if the standard variable rate increases, repayments on a fixed rate mortgage will remain the same. FIXTURES - Any item that is attached to a property, and so is legally part of the property. FLEXIBLE MORTGAGE - Allows you to vary monthly payments to fit temporary changes to your circumstances. You can make additional payments to reduce the loan in months where you have excess cash (for example, as a result of a bonus or extra commission), or you can reduce payments, or even withdraw cash, when you need extra funds. Interest is usually calculated daily, so changes to the loan amount have immediate effect. FREEHOLD - Ownership of both the property and the land it stands on. FUNDS RELEASE FEE - A funds release fee is payable upon completion of a mortgage. GAZUMPING - This is when a seller accepts a higher offer from a third party on a property that they have agreed to sell to someone else, but not yet exchanged contracts. Although illegal in Scotland this still happens in England and Wales. GAZUNDERING - When the buyer blackmails the seller into accepting a lower offer just before contracts are about to be exchanged. GROSS - A term used in connection with a sum of money from which tax has not been deducted e.g. mortgage interest before tax relief is deducted. GROUND RENT - The annual charge levied by the freeholder to the leaseholder. GUARANTOR - The lender may sometimes require a borrower to appoint a guarantor. This is someone who promises to pay the borrower's debt if or when necessary. HIGHER LENDING CHARGE - An up-front, one-off fee paid to the lender to protect them against the borrower defaulting on the loan. Usually charged on mortgages over 75% of the house value. Previously known as MIG, Indemnity Guarantee Premium and Mortgage Indemnity Premium. HM LAND REGISTRY - The official organisation that keeps records of properties in England and Wales. Transfer of ownership has to be registered with the HM Land Registry HOMEBUYER SURVEY AND VALUATION - This is when a professional surveyor checks the structural state of a property. This is more detailed than a valuation but less detailed than the building survey. The report is optional and you pay the bill; This report should pick up possible problems and may give you the chance to negotiate a lower price. You have more grounds to sue or get compensation from a surveyor for a poor report than you would from a standard valuation. IFAs - Independent Financial Adviser - an adviser committed to offering products from the full range of financial products offered in the marketplace. IFAs are normally regulated by the Financial Services Authority. INFORMATION-ONLY - Where a customer buys a financial product without receiving advice on its suitability INTEREST-ONLY - Your monthly payments to your lender are simply made up of interest. You do not pay off any of the mortgage during the term of the mortgage. You pay off the mortgage finally using the proceeds of a separate investment plan for example, an endowment, personal pension or PEP and so on. ISA - Individual Savings Account. This is a tax-free way to own shares, unit trusts and life assurance, as well as savings. Depending on the lender, you may use an ISA to repay an interest-only mortgage. JOINT AGENTS - When the seller commissions two independent Estate Agents to sell a property JOINT TENANTS - This is the owning of land by two or more people who are co-owners or 'joint tenants'. When one of the joint tenants dies, the ownership of the property automatically passes to the survivor(s). KEY FACTS ILLUSTRATION - Also referred to as a 'KFI'. This is a document given by a lender to a borrower that gives full details of a mortgage, if the mortgage is regulated by the Financial Services Authority. LAND REGISTRATION FEE - A fee paid to verify legal title and rights over the property and to register ownership of the property with the Land Registry. LEASE - A document which grants possession of a property for a fixed period of time and sets out the obligations of both parties, landlord and tenant, such as payment of rent, repairs and insurance. LEASEHOLD - Temporary ownership of the property but not the land on which it stands. When the lease expires, ownership of the property reverts back to the freeholder. LENDER'S ARRANGEMENT FEES - Charge passed on to the buyer by lender for arranging a loan. LENDER'S LEGAL FEES - The fees incurred by the lender when arranging a mortgage. These costs are passed on to the buyer. LEVEL TERM ASSURANCE - Life assurance which pays out a lump amount if you die during the term. The amount of cover stays the same throughout the term, which makes the cover suitable for interest-only loans because the amount you owe on the mortgage stays the same until the end of the mortgage. LIBOR - Is the London Interbank Offered Rate. This is the rate at which banks buy and sell money to each other. It changes daily and is linked to base rates set by the Bank of England. LIBOR usually changes daily and a LIBOR linked mortgage may be adjusted at fixed intervals, e.g. every three or six months. LTV - Loan to value. This is the size of the mortgage as a percentage of the value of the property or the price you are paying for the property. A £45,000 mortgage on a house valued at £50,000 would mean an LTV of 90%. LOCAL AUTHORITY SEARCH - A search carried out by the Solicitor to find out if there are any Local Authority Notices, with respect to the building itself (e.g. has it been condemned?), and the surrounding area (e.g. have plans gone through to build a motorway next to the house?). MISSIVES (Scotland) - The formal written offer to purchase and the acceptance MORTGAGE - A loan made against the security of property. MORTGAGEE - The company or organisation which lends you the money under a mortgage. MORTGAGOR - The person taking out the mortgage. MORTGAGE DEED - The legal charge of the property to the mortgage lender until such time as the loan is repaid. MORTGAGE TERM - The period of time that the mortgage loan is to be repaid, commonly 25 years. MPC - Monetary Policy Committee of the Bank of England. Meets monthly to discuss and alter interest rates etc. MPPI - It is important that you consider protecting your monthly mortgage payments against accident, sickness and unemployment. Mortgage payment protection insurance is a type of insurance designed to provide such protection. MUTUALS - Organisations owned by and for the benefit of their members (savers and borrowers), with no outside shareholders. Building societies are mutuals, and so are some insurance and investment companies. NEGATIVE EQUITY - This is where the money you owe on the mortgage is greater than the value of the property. For example, if you had a £60,000 mortgage on a property valued at £50,000, you would have £10,000 negative equity NET - A term used in connection with a sum of money from which tax has been deducted e.g. mortgage interest after tax relief has been deducted NEW FOR OLD - This is insurance cover, which will pay the full cost of replacing damaged, or lost property with a similar, new item. NO-CLAIMS BONUS - This is similar to motor insurance. You will be given a discount on buildings and contents insurance if you haven't made a claim for a number of years. OFFER DOCUMENT - The letter from a lender offering a customer a mortgage loan and setting out the conditions upon which it is offered. OMBUDSMAN - An impartial commissioner set up to settle complaints made by the public against major industries or institutions; e.g. for the financial sector, the Financial Ombudsman Service. ON RISK - This is when your insurance cover begins. This may be before you have paid a premium. PART AND PART - Where the repayment method is part Repayment and part Interest Only. PAYMENT RELEASE - Electronic transfer of money between two parties on the sale/purchase of a property. Will often incur a fee from your solicitor and monies sent from a lender is usually in this form. PERSONAL PENSION - A plan which you take out to produce income and maybe a tax-free lump sum when you retire or upon death. Personal pensions commenced in July 1988 and you can use them to contract out of the State Earnings Related Pension Scheme. Employers can also normally contribute to a personal pension. You can also normally invest a transfer value from a previous pension scheme into it. Employees who are members of an occupational scheme cannot contribute to their own personal pension plan. PEP - Personal Equity Plan - Tax-efficient savings plans replaced by ISAs in 1999. You can no longer invest in a new PEP but you can still transfer your existing PEP into an ISA. PREMIUM - A payment for an insurance policy. PRINCIPLE - The sum of the loan on which interest is calculated. PUBLIC LIABILITY INSURANCE - Insurance which covers injury or death to anyone on or around your property. REDEMPTION - Full repayment of the loan. REDEMPTION ADMINISTRATION FEE - A fee charged by the lender for releasing the deeds following repayment of a mortgage. REDEMPTION PENALTIES - Penalties sometimes incurred if paying off a mortgage early. Also known as Early Repayment Charges. REGISTERED LAND - Land for which title is registered and recorded at HM Land Registry, the central registry of the title to property in England and Wales. REINSTATEMENT VALUE - The cost of rebuilding your home should it be destroyed. REMAINING TERM - The original loan term minus the number of payments made. REMORTGAGE - Is when you move your mortgage to another lender without moving house to benefit from a better rate/deal or to raise funds by increasing the size of the mortgage. REPAYMENT MORTGAGE - Instalments of capital and interest are paid throughout the term of this type of mortgage. REPOSSESSION - When the mortgage lender takes away a borrower's home because he has fallen too far behind on mortgage repayments. RESERVATION FEE - If you wish to take out a special offer mortgage (fixed, capped or discounted rates), a non-refundable reservation fee may be charged to cover any extra administration involved and the special arrangements required to secure the funds. RETENTION - If essential repair work to a property is required, the lender may retain a proportion of the mortgage until the remedial work is completed. SASSINES REGISTER FEE (SCOTLAND) - Fees paid to the Register of Scotland to register ownership of a property. SEARCHES - Enquiries made at the Land Registry, the Land Charges Register and Local Authorities to ensure there is nothing to cause concern about title to land. SECOND CHARGE - A second lender takes a charge over the property to secure a loan, whilst the first mortgage remains outstanding. SECURITY - When a loan is taken out it can be 'secured' on a property. The borrower agrees that in the event of default on repayments, the lender can claim the property SELF-CERTIFICATION - You give full details of your income and sign a declaration it is correct. For people who are unable to prove their income in the normal way, e.g. are self-employed, a company director, a contractor, have several sources of income or fluctuating income. SELF-BUILD MORTGAGE - Mortgage for those who wish to build their own home, renovate or convert their existing home. Funds are normally released in stages as work progresses following a satisfactory progress report from an architect. SETTLEMENT - In Scotland, this is the same as completion. SHARED OWNERSHIP MORTGAGE - A prospective buyer buys a share of a house and rents the remaining portion. Successive shares can some times be bought. This is sometimes called 'staircasing'. SOLE AGENT - A single estate agent agrees to sell the property. SOLICITOR - The person who deals with the conveyancing. STAMP DUTY - A tax you pay on properties which cost over £60,000. This is charged as follows: Property value £60k - £250k stamp duty = 1% Property value £250k - £500k stamp duty = 3% Property value £500k+ stamp duty = 4% So a property costing £67,500 would have stamp duty of £675. STANDARD VALUATION - A valuation of the proposed property carried out by the lender before agreeing to give out a mortgage. The primary objective of a valuation is to check suitability of the property as security to protect the lender's money. The valuation is normally paid for by the buyer but is carried out for and on behalf of the lender. A separate structural survey is recommended. Also known as a VALUATION SURVEY. STANDARD VARIABLE RATE (SVR) - The mortgage lender's interest rate at any give time on mortgages that are not under fixed, discounted or capped rate conditions. This is the rate that the mortgage will often have once the initial benefit period is over. SUBJECT TO CONTRACT - Qualification of a provisional agreement made between buyer and seller, before exchange of contracts, which allows either side to back out without penalty or liability. SURVEYOR - Individual that carries out surveys on properties, who must be a member of the Royal Institution of Chartered Surveyors (RICS). SUM ASSURED - How much the life assurance or investment company guarantees to pay you, if you have an endowment policy and you die. This figure may be less than the mortgage amount unless the policy is specifically designed to match the mortgage amount. TENANTS IN COMMON - A form of ownership by two or more people in which, if one dies, their share of the property forms part of their estate and does not automatically pass to the other(s). TENURE - Whether a property is freehold or leasehold. TERM - The period of years over which you take the mortgage and when you have to repay it. Most new mortgages are taken on a 25-year term. THIRD PARTY BUILDINGS INSURANCE - A charge a lender may make if you decide to take buildings insurance from someone other than the lender. A typical charge is around £35. TIE-IN PERIOD - As a condition of a special mortgage deal (discount or fixed rate, for example), you may have to agree to stay with the lender for a period of months or years after the deal has ended. If you move your mortgage elsewhere during this period, or switch to another product, you may have to pay an early redemption charge. TITLE - The legal right to ownership of a property. TITLE DEEDS - Documents stating who has title or right to the ownership of a property, which also show the boundary of the land. TITLE SEARCHES - Undertaken by a solicitor or conveyancer to ensure that there are no unusual circumstances governing the ownership or use of a property. TRANSFER DECLARATION - This is the document on which UCB offers a new product to an existing customer who wants to change from his existing product to a new one, during the life of the loan. It details all the product conditions, and is thus similar to the Offer Document provided by New Business at the start of the mortgage. TRANSFER DEED - A document that, once you sign it, actually transfers the ownership of the property. TRANSFER OF EQUITY - A sale or gift of one person's interest in the property to another, most commonly on divorce or separation where the family home is jointly owned. UNIT TRUST - A popular type of stock market-linked investment that you may use to repay an interest-only mortgage. Your monthly premiums buy units in a fund of stocks and shares that is run by a professional manager. The value of units can go down as well as up, and a unit trust doesn't include life assurance. UNIT-LINKED ENDOWMENT - Your monthly premiums are used to buy units in a fund or funds run by professional managers. Like unit trusts, the price of these units can go up and down, so the value of the endowment can constantly change. UNITISED WITH-PROFITS ENDOWMENT - A mixture of the unit-linked and with-profits endowments. Like the unit-linked endowment your monthly premiums are used to buy units in a fund, or funds. Unlike the unit-linked endowment, the value of the units cannot fall, once an increase has been made. UNREGISTERED LAND - Land, the ownership of which is established by a bundle of deeds but is not registered on the registered land system. VARIABLE RATE - The interest rate the lender charges goes up and down, with your interest payments changing accordingly. VENDOR - The person selling the property. WITH-PROFITS ENDOWMENT - Your monthly premiums are pooled together with those of other policy owners and invested for you by a life insurance company. The policy will have a basic sum assured which bonuses are added to, to build up a cash sum. This should be enough at the end of the term to repay the mortgage. However, you need to review performance regularly to ensure it remains on track.
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