Loan Glossary
Accident, Sickness and Unemployment Cover
This is a type of insurance that will pay out a monthly cash amount for a
restricted period of time if you lose your job, are unable to work through illness
or have an accident that prevents you from working for a given length of time.
Annual Percentage Rate (APR)
APR is a percentage figure that considers all costs, charges and fess to
enable you to compare loan repayments from multiple lenders on a like-for-like
base.
Arrears
Arrears occur if mortgage payments have not been made on the agreed dates
and/or less than the agreed payment amount has been submitted to the lender.
Base Rate
This is the interest rate that is set by the Bank of England, which affects
all the savings and borrowing rates in the UK.
Bridging Loan
Bridging loans are taken out in a house buying chain, when a person wants to
buy a house before they sell their existing residence. In order for house moving
to occur a buyer may “bridge” the completion on the new house with
a loan whilst waiting for their old house to complete. Bridging loans bridge
the gap between the two house sales. Bridging loans are expensive and risky
to the borrower as the sale on their old house may not complete leaving them
with expensive bridging loan repayments as well as mortgage repayments to meet.
Building Society
A Building Society is a financial institution that is not owned by shareholders
but by the members of that particular building society. Building societies offer
savings on deposits and lend money to its members in order for them to buy property.
Buildings and Contents Insurance
This is joint insurance policy which provides cover for the rebuild or structural
repair costs to a property and the cost of the contents within that property
in the event of loss or damage.
Buy-to-Let Mortgage
This is a mortgage designed for people who wish to rent the property they are
mortgaging.
Capital and Interest Mortgage
A type of mortgage in which the borrower repays part of the loan capital each
month as well as interest on the loan amount remaining
Capped-Rate Mortgage
This type of mortgage guarantees the borrower that the interest rates will not
rise above a ceratin cap regardless of any increase in the Bank of England base
rates.
CCJ
CCJ stands for County Court Judgement. CCJs are judgements made in England and
Wales against a person if they are summoned to court about a debt and the person
either does not attend or loses the case. CCJs can affect a person’s credit
rating.
CML
This stands for the Council of Mortgage Lenders which is a trade organisation
comprising the major banks and building societies.
Consolidation Loan
This is a type of loan that is arranged specifically to pay off (consolidate)
a single debt or a number of debts.
Credit Search
This is a search invoked by a lender through a specialised company to ascertain
if a loan applicant has CCJs or bad payment history. Lenders use this to predict
the degree of risk of lending to a potential borrower.
Credit Rating
This is a score or ranking that lenders award to borrowers to indicate creditworthiness.
Critical Illness Cover
A type of insurance which pays a guaranteed cash amount in the event that you
are diagnosed with a critical illness covered in your Critical Illness Plan.
Death Benefit
This is a payment from a life insurance policy that is made when the insured
person dies.
Discounted-Rate Mortgage
This type of mortgage provides the borrower with a set period of payments discounted
against the lender’s standard variable rate.
Endowment Mortgage
This type of mortgage sees the borrower making repayments that cover the lender
interest costs only whilst at the same time contributing to a separate endowment
policy that is designed to mature to the value of the loan capital at the term
of the loan in order to pay the lender the initial loan amount. Endowments are
risky as he final amount in the endowment is often not guaranteed.
Equity Release
This is a type of mortgage where the borrower owns a house outright and wishes
to use the value of the property as security against a loan.
Fixed-Rate Mortgage
This is a type of mortgage where the interest rate is fixed for a set period
of time.
Flexible Loan
A flexible loan allows the borrower to borrow an agreed amount but with a degree
of payment flexibility inbuilt. The borrower may then increase or decrease the
loan repayments according to their financial situation.
Flexible Mortgage
A flexible mortgage allows someone to borrow an agreed amount but with a degree
of payment flexibility inbuilt. The borrower may then increase, decrease or
in some cases temporarily suspend the mortgage repayments according to their
financial situation
High-Lending Fee (Mortgage Indemnity Guarantee)
This is an additional charge normally made by lenders when a borrower wishes
to take out a mortgage in excess of 90% of the value of a given property.
Interest
This is the charge that lenders make for borrowing an amount of money.
Interest-Only Mortgage
This is a type of mortgage where the borrower pays interest only on the mortgage
but takes out a separate savings scheme in order to pay off the mortgage at
the end of the mortgage term.
Lender
A person or organization such as a bank or building society that lends money.
Loan-to-Value (LTV)
This is the amount of mortgage loan required as a percentage of the property
value.
Mortgage
A mortgage is a loan designed specifically for property purchases. Mortgage
loans are secured against the property value and have varying repayment terms.
Mortgage Payment Protection
A type of insurance designed to meet your monthly mortgage repayments in the
event that you are lose your job or are unable to work.
Mortgage Valuation
Mortgage valuations of the property you wish to purchase are carried out by
a surveyor on behalf of the mortgage lender and to assess the value of a property
and whether it is suitable for mortgaging.
Non-Status Mortgage
These are mortgages offered by lenders to borrowers who do not have proof of
previous mortgage history and/or income. Non-status mortgages will usually only
provide up to 70% of the property value.
Offset Mortgage
An offset mortgage allows a borrower to offset the mortgage balance against
money in a current or savings account held with the lender.
Payment Holiday
A payment holiday is an offer made by some lenders to enable borrowers to take
time off from making monthly repayments.
Personal Loan
This is a type of loan that an individual takes out. Personal loans usually
have a fixed rate of interest and a fixed repayment period.
Redemption Penalty
This is a financial penalty charged to a borrower by a mortgage lender if the
borrower changes lender or repays the amount borrowed before an initially agreed
period of time.
Remortgage
A remortgage is the switching of mortgages from one lender to a new lender:
the new lender pays off the remaining value of the mortgage to the old lender.
A remortgage offer borrowers the opportunity to move to a mortgage that has
better rates.
Repossession
Repossession occurs when a borrower does not repay a loan in the manner agreed
in the terms and conditions of the loan agreement. The lender literally repossesses
the property taking legal ownership away from the borrower.
Secured Loan
This is a type of loan whereby some asset, usually a property, is put up as
security to a lender. This security is security for the lender and not for the
borrower. If repayments are not kept the lender is legally entitled to repossess
the property and sell it to reclaim its money.
Standard Variable Rate
This is the rate of interest charged by most mortgage lenders which rises and
falls in relation to the Bank of England base rate.
Title Deed
A title deed is a legal document that specifies the owner of a particular property
and other relevant information about the property and the land it stands upon.
Tracker Mortgage
A tracker mortgage tracks the rise and fall of the Bank of England base rate
in order to give borrowers the benefit of interest rate decreases at the soonest
possible moment.
Unsecured Loan
This is a type of loan which does not require the borrower to secure any asset,
such as a property, against it.
