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.
Charging Order
This secures the
debt on your home usually with conditions
concerning payments. A charging order has the
effect of converting an
unsecured debt into a secured one.
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.
Loan articles
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