Glossary for
secured personal loans
Variable
Rate
An interest rate that
changes periodically in relation to an index. Payments
may increase or decrease accordingly.
Amortization
A repayment method in
which the amount you borrow is repaid gradually though
regular monthly payments of principal and interest.
During the first few years, most of each payment is
applied toward the interest owed. During the final years
of the loan, payment amounts are applied almost
exclusively to the remaining principal.
Amortization Term
The amount of time
required to amortize the loan. The amortization term is
expressed as a number of months. For example, for a
15-year fixed-rate mortgage, the amortization term is
180 months.
APR
When you borrow money,
every lender is required by law to quote this rate.
Always insist on being told the APR, it's the best way
of comparing like with like. If a lender can't tell you,
find another one - they're probably a bit seedy or even
a loan shark!
The APR was introduced as
part of the Consumer Credit Act of 1974.
The headline quoted rate
on a mortgage or a credit card states the rate of
interest you pay per month or per year, but it's the APR
figures (usually shown in brackets) which calculates the
total amount of interest that will be paid over the
whole term of the loan. The APR should also take into
account any charges which the borrower has to pay. So,
if you see a 'too good to be true' mortgage offer, where
the loan is fixed at a surprisingly low rate for 1 year,
bear in mind, after the fixed period has ended, the
interest rate will almost certainly revert to the
current variable mortgage rate for the remainder of the
loan, which may be another 24 years!
The net result is the APR
will be much higher than 3%.
Application Fee
Fees that are paid upon
application.
Bridging Loan
This is a short term
loan. It is often used by purchasers of a property who
need funds for a limited period of time. e.g. until they
sell their existing home. Major banks and building
societies can offer bridging finance, but consider all
the risks before you opt for it. Consider the risks. For
example, if you effectively take on a second home loan
and you fail to sell your first property, can you afford
to shoulder the burden ?
Bankrupt
A corporation, firm or
individual is described as being 'bankrupt' when they
are relieved from paying all debts once their assets
have been surrendered to an appointed third party.
Bankruptcy proceedings are managed via the court system,
with the appointed third party designated by the court
in charge of the proceedings, in accordance with the
Insolvency Act. A supervisor is appointed to receive a
bankrupt person's earnings. The bankrupt is permitted to
receive an allowance on which to live with the balance
being reserved for the benefit of his or her creditors.
A bankrupt person is not
permitted to hold a bank account or apply for credit in
excess of £250 without the court's permission
Cap
The maximum allowable
increase, for either payment or interest rate, for a
specified amount of time on an adjustable rate mortgage.
See Adjustable Rate Mortgages for a complete guide.
Cash Out or Cashback
Receiving money back when
refinancing your present mortgage.
CCJ
County Court Judgement (CCJ)
judgements are given by the county court as a result of
a non-payment of a debt. This can be for quite a small
amount but can have serious implications for your credit
record and your ability to obtain credit in the future.
In fact, once you have a CCJ it will appear on every
credit search for the next seven years. However, if the
debt is settled in full within 30 days of the date of
the judgement it will not appear in the credit register.
In the event of a payment after that date the judgement
will appear in the register but will be shown as being
satisfied. If a judgement has not been settled and is
outstanding this is likely to lead to a lender's
refusing a mortgage or loan application.
Ceiling
The maximum allowable
interest rate over the life of the loan of an adjustable
rate mortgage.
Clear Title
A title that is free of
liens or legal questions as to ownership of the
property.
Closing
The time and place at
which all documents for your loan are signed, dated and
notarized.
Closing Costs
Any fees paid by the
borrowers or sellers during the closing of the mortgage
loan. This normally includes an origination fee,
discount points, attorney's fees, title insurance,
survey, and any items which must be prepaid, such as
taxes and insurance escrow payments.
Collateral
An asset that guarantees
the repayment of a loan. The borrower risks losing the
asset if the loan is not repaid according to the terms
of the loan contract.
Credit Limit
The maximum amount that
you can borrow under a credit plan.
Credit History
A record of an
individual's open and fully repaid debts. A credit
history helps a lender to determine whether a potential
borrower has a history of repaying debts in a timely
manner.
Credit Report
These days having a less
than perfect credit record or an irregular income should
not stop you from taking out a mortgage or getting
access to other borrowings. Recent research reveals that
about a quarter of the population would be refused
credit, showing that it is not a problem confined to the
minority.
If you have had credit
problems in the past don't immediately rule out the high
street lenders. They say they take each case
individually and would consider someone with a County
Court Judgment (CCJ) for non-payment of debt, if it was
for a small amount and had been cleared some time ago.
But if you are refused credit, lenders don't have to
tell you why.
Both a CCJ and a
bankruptcy order are held on a person's credit record
for six years. CCJ's can be withdrawn from your file if
they are cleared within one month. It is worth knowing
that you could unaware that you have a CCJ on your
credit record, perhaps caused by a bill being unpaid if
it was sent to an old address.
When you apply for
credit, lenders check your credit record, called credit
scoring, with specialist credit agencies that collect
information from the courts, lenders and the electoral
roll.
If you feel you there has
been an error made in your credit scoring you can obtain
your credit file from the main credit agencies Experian
and Equifax for a cheque for £2. They will send you your
details covering the past six years within seven days.
If you have a dispute
about an item you can call or write to ask for an
investigation and, if proved correct, to have your
record altered. Beware of so-called credit repair
companies, especially if they try to offer you loans at
high rates of interest. If that happens steer well
clear.
Debt
Amount owed to another.
Debt Consolidation
Replacing a number of
existing loans with a single loan from a new lender.
This can result in a reduction in your monthly payments
by spreading the larger loan over a longer period and
possibly, by reducing the overall interest rate.
Debt Service
The total amount of
credit card, auto, mortgage or other debt upon which you
must pay.
Debt-to-Income Ratio
The ratio, expressed as a
percentage, which results when a borrower's monthly
payment obligation on long-term debts is divided by his
or her gross monthly income.
Deed of Trust
Used in many western
states, the agreement used to pledge your home or other
real estate as security for a loan. Similar to a
mortgage.
Default
Failure to make mortgage
payments on a timely basis or to comply with other
requirements of a mortgage.
Down Payment
The difference between
the purchase price and that portion of the purchase
price being financed. Most lenders require the down
payment to be paid from the buyer's own funds. Gifts
from related parties are sometimes acceptable, and must
be disclosed to the lender.
Early redemption
charge
This is a charge made by
your mortgage lender which is payable on certain types
of loan - usually discounted or fixed interest rate
loans. The charge is only applied if the loan is
redeemed or part-redeemed within the specified early
redemption charge period.
This is the quid-pro-quo
of benefiting from the certainty conferred by fixed
rates or the cheaper mortgage offered by discounted
rates.
Some lenders lock you in
to a three or six month redemption charge - you've been
warned, if someone is offering you an incredibly good
interest rate below the rate prevailing on variable rate
mortgages, the chances are they want something - your
loyalty, and that could mean it'll cost you if you
decide to move lender in future.
Effective Interest
Rate
The cost of credit on a
yearly basis expressed as a percentage. Includes
up-front costs paid to obtain the loan, and is,
therefore, usually a higher amount than the interest
rate stipulated in the mortgage note. Useful in
comparing loan programs with different rates and points.
Encumbrance
A claim against a
property by another party which usually affects the
ability to transfer ownership of the property.
First Mortgage
A mortgage which is in
first lien position, taking priority over all other
liens (which are financial encumbrances).
Fixed Rate
An interest rate which is
fixed for the term of the loan. Payments as well are
fixed at one amount.
Guarantor
Person who agrees to
guarantee that a loan will be paid. The guarantor is
therefore fully liable for the repayment of the borrowed
amount should the borrower default.
Grace Period
A period of time during
which a loan payment may be paid after its due date but
not incur a late penalty. Such late payments may be
reported on your credit report.
Gross Income
For qualifying purposes,
the income of the borrower before taxes or expenses are
deducted.
Interest Rate
The periodic charge,
expressed as a percentage, for use of credit.
Lender
The bank, mortgage
company, or mortgage broker offering the loan.
Lien
The right to take and
hold or sell the property of a debtor as a security or
payment for a debt.
Loan - Secured
A
secured loan is one whereby the equity in your
property is used as security against the
loan not being repaid. If you default, you may be
forced to sell your home and pay off the
secured personal loan with the equity.
Loan - Unsecured
With an
unsecured loan, the
loan is not
secured against a property, either because you are
not a homeowner or because your credit score is such
that no security is required. Unsecured loans, because
they carry a higher risk of default, often attract a
higher interest rate.
Mortgage
A legal document that
pledges to the lender as security for payment of a debt.
Note
A written agreement
containing a promise of the signer to pay to a named
person, or order, or bearer, a definite sum of money at
a specified date or on demand.
Principal
The original amount of
the loan, the capital.
Quotation
A detailed document
itemising costs, fees etc. which will be incurred in
taking out the specified loan.
Rate
The annual rate of
interest on a loan, expressed as a percentage of 100.
Title
The written evidence that
proves the right of ownership of a specific piece of
property.
Title Search
An investigation into the
history of ownership of a property to check for liens,
unpaid claims, restrictions or problems, to prove that
the seller can transfer free and clear ownership.
Top-up loan
Form of
second mortgage normally used to provide an overall
loan in excess of the loan to value ratio allowed by
the primary lender. Top up loans will invariably be
charged at a higher rate than the first
mortgage and will frequently carry onerous
redemption charges.
Underwriting
The process of verifying
data and approving a loan.
Valuation
A brief inspection of a
property for mortgage purposes confirming the
suitability of a property to secure money against and
its value. inspection carried out for the benefit of the
mortgage lender to ascertain if a property forms good
security for a loan. Whilst the borrower may be given a
copy of the valuation this is only a limited form of
inspection and should not be relied upon on when
deciding whether to purchase a property. Purchasers
should be advised to obtain either a House or Flat
Buyer's report or a full structural survey before
proceeding with a purchase
Variable Rate
An interest rate that
changes periodically in relation to an index. Payments
may increase or decrease accordingly. |