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GLOSSARY of CREDIT TERMS I-Z

Income Multiplier
Income Multipliers are used by lenders as one calculation in determining how much they are prepared to lend on mortgage. The most common multiplier used is 3 times a single income or 2.5 times joint income, whichever gives the higher figure. More generous multipliers are available from some lenders and lenders will be more flexible if the Loan to Value is relatively low.

Individual Savings Accounts
The concept of Individual Savings Accounts was introduced in the budget in March 1998 and ISA's will become available in April 1999. They are designed to replace the existing PEP and Tessa vehicles, which will no longer be available after this date. ISA's are designed as tax efficient savings plans and the proceeds from these investments will be free of income tax and capital gains tax. There will be a maximum investment allowed of £000 per annum, of which £1000 can be put into life assurance and £1000 into cash (including National Savings). This annual limit will be raised to £7000 for the first year only. Savers will have the option of having one manager look after the three components of the ISA or having three separate managers looking after the cash, life assurance and stocks and shares. The fixed maximums per component will ensure that savers do not invest too much and break the rules. There are no statutory tie-in periods so access will depend on the individual plan rules.

Initial Interest
This figure is usually shown on the mortgage completion statement and refers to the amount of interest charged from the date that the funds are drawn down to the first repayment date. This has the effect of increasing the first mortgage payment and the amount of the initial interest payable will depend on the time in the month when the mortgage is completed. For example, if the mortgage payment is due on the 1st of the month and the mortgage is completed on 18th June then the first monthly mortgage payment will become due on 1st August. That monthly payment will, however, include one months interest from 1st July - 1st August and also 13 days interest from 18th June - 30th June which represents the initial interest.

Insurance Guarantee Premium - (See Mortgage Indemnity Premium)

Interest
Interest is the amount you are charged for borrowing money. Interest on credit cards is charged for the length of time the money is borrowed, unless you repay the amount borrowed promptly after the monthly statement arrives.

Interest Only Mortgagee
Interest only mortgages have become increasingly popular in recent years. Interest only mortgages can be supported by an endowment policy, pension plan or Pep in which case they are normally referred to as an endowment, pension or Pep mortgage. An interest only mortgage may, however, be arranged without the support of any particular repayment vehicle. Many lenders will now accept payment of interest only on the basis that the borrower makes their own arrangements to repay the capital at or before the end of the mortgage term. This could be done in a number of ways such as inheritance, sale of the property or from the realisation of other assets.

Interest charges on credit cards
Interest charges are calculated on a monthly basis. Usually only the revolving amount (the amount carried forward at the end of the month) will incur interest charges. Charge cards do not have interest charges since the payment is paid off in full each month.

Interest free period
Some cards calculate interest from a calendar date instead of the date of purchase. The days between the actual purchase and this calendar date will therefore be interest free. You may lose this interest free amount unless you pay off the balance in full.

Interest-only mortgages
A mortgage plan that pays back the loan amount in full at the end of the loan period. The lender will receive only interest payments from you each month, but you are required to set up an investment plan which will pay off the mortgage in full at the end. There are three main types of interest-only mortgages: Endowment, Pension and ISA.

Interim Dividend
The interim dividend is a dividend payment made on account during the course of the financial year. Usually it's paid following a half year profit (or loss) announcement. Most companies in the UK pay only one interim dividend. But some, especially in the U.S., can make interim payments three times in a year followed by a final dividend at year's end. The interim dividend is usually announced at the time of the interim results. Unlike the final dividend , the interim dividend does not require the agreement of a company's annual shareholder meeting ( AGM ).

Introductory rate
A reduced rate valid for a limited period usually offered as an incentive to switch or add cards. The rate may be valid for purchases, cash advances or balance transfers.

ISA
The Individual Savings Account is a tax-free savings plan that can be used to pay off some mortgages. The maximum amount you can save is £,000 per year (£7,000 in 2000/2001).

Issuer
Organisations like banks, building societies and others which give out cards to customers are called issuers.

Land Registry Fee
This is a fee charged by the Land Registry to record a change in the registered title of Registered Land. The change will normally be notified to the Land Registry by the solicitor acting in the house purchase (or re-mortgage) and as such the Land Registry fee will normally be payable to the solicitor and accounted for in his final account.

Leasehold (NOT SCOTLAND)
This is the tenure that applies to most flats and maisonettes in the UK (excluding Scotland). As opposed to freehold property the rights to the property are owned only for a fixed period of time, with the freehold being held by a third party. The lease outlines the responsibilities of the various lessees in a block and determines the arrangements to be adopted for such things as upkeep of the common areas and insurance of the property. Because these cross covenants are required to avoid disagreements and contusion between the lessee's, only leasehold flats and maisonettes are accepted as mortgage security. This should not be confused with the situation where the freehold is owned by all the lessees in a block and this will commonly be advertised as 'share of freehold'. Providing individual leases exist for each lessee then this would normally be acceptable to mortgage lenders. If in any doubt always take legal advice before proceeding

Legal Completion
This refers to the time at which the legal ownership of the property changes hands. This date will usually be agreed upon at exchange of contracts. This will also be the date at which the mortgage becomes effective (sometimes the mortgage completion date may be a couple of days before this to ensure that the solicitor has funds on the due day).

LIBOR Linked Rate
LIBOR is the London Inter Bank Offered Rate and is the rate at which banks lend money to each other. LIBOR changes daily and a LIBOR linked mortgage will normally be adjusted every three months. LIBOR linked rates are usually quoted as X% above LIBOR.

Limited Liability
Shareholders are not liable for the debts of the company over and above the money they have subscribed through the purchase of the company's shares. This is known as limited liability. Liability may also be limited by guarantee - in which shareholders guarantee to cover a set amount of potential losses. This is much rarer.

LINK
LINK is a UK network of cash machines. You can use LINK cards to withdraw cash from ATMs displaying the LINK sign. Some banks and building societies offer LINK cardholders international cash withdrawal services, which means you can take out money in local currency at a cash machine bearing the LINK logo when you are abroad. Your account back home is debited in pounds

Loan period
Also called repayment period, this is the time it takes to pay back the loan. A shorter period means higher monthly payments (there are fewer months over which to spread them), but less interest paid in total on the loan.

Loan Stock
This is a security issued by a company in respect of a loan made by investors. Loan stocks may be secured but often, unlike a debenture , they are not. Loan stock holders are in the same place in the pecking order as other unsecured creditors if a company goes bust. Loan stocks usually bear a fixed rate of interest.

Loan to Value (LTV)
The loan to value is expressed as a percentage and represents the relationship between the size of the mortgage and the value of the property. For example a mortgage of £30,000 on a property valued at £0,000 would be shown as 75% LTV. This is an important figure to look at when considering the various mortgage options as the higher the LTV required the fewer the options.

Loan Consolidation - see Debt Consolidation.

Loss Adjuster
If you have an insurance claim you'll want to make sure you claim and receive what is due to you while the insurer will want to make sure they don't over-re-imburse you. So just as you may employ a loss assessor , the insurance company may also call in a third party independent expert, a loss adjuster, to assess the value of your claim - especially if the insurance company disputes the valuation you have put to them. In short loss adjusters work against you!

MasterCard
MasterCard is one of the main credit card payment schemes operating world wide. These schemes do not give out cards themselves but instead they control the money transmissions networks which join outlets, acquirers and issuers.

Merchant
Any business, however small, which takes a credit card is called an outlet or merchant. It may be one shop, a chain store, a garage, a dentist, a hairdresser, a cinema and so on. There are half a million outlets in the UK which accept payments for purchases by credit and debit card.

Minimum monthly payments
Most cards have a minimum requirement for how much you need to pay each month towards an outstanding balance. This is expressed either as a percentage of the balance or as a fixed amount.

MIRAS
Mortgage Interest Relief at Source, this was the tax relief permitted on mortgage interest payments. The value of this benefit was gradually reduced over a number of years and was eventually abolished for both new and existing mortgages in April 2000.

Mortgage indemnity guarantee (MIG)
A fee to cover the lender if the loan-to-value (LTV) is above a certain level, typically 75 or 80%. The fee is meant to protect the lender if it has to take possession of the property, and the value of the property has fallen below the loan amount. Sometimes called Mortgage Guarantee Insurance.

Mortgage Offer
Following the receipt of satisfactory credit searches, references and a survey of your property, your chosen lender should then be able to provide you with a formal written Mortgage Offer. This will advise you of the amount they are prepared to lend to you together with details of the mortgage scheme you have selected and the expected cost of the mortgage. A copy of this form will also be forwarded to your solicitor together with the documentation required for completion.

Mortgage Protection Policy
A mortgage protection policy is a pure life insurance policy with a decreasing sum assured designed to protect the remaining outstanding capital of a repayment mortgage. Put another way, if you were to die, the lender would like to know that you have an insurance policy in place which will be used to immediately pay off your mortgage debt. That's very handy for them and sensible for you if you're leaving a partner and/or family behind who want to continue living in the property but perhaps wont be in a position to afford the mortgage repayments without you. Bear in mind that whatever type of mortgage you have, you will need some kind of insurance policy in place to repay the loan in the event of the death of the borrower(s) during the mortgage term. You will not need a separate insurance policy with an endowment mortgage

Mortgage Term
This is the number of years over which the mortgage is arranged. If a capital and interest mortgage is being considered then it is worth looking at shorter terms than the traditional 25 year mortgage as considerable interest savings can be made by reducing the mortgage term by even a couple of years.

Mortgage Valuation
This is the most basic form of survey and is the minimum required by lenders in order to ascertain the suitability of the property as security for their loan. Although the borrower will normally receive a copy of this report it should not be relied upon as a comprehensive report on the condition oft he property. A more detailed report (either a Home Buyers Report or Structural Survey) should be commissioned when considering the purchase of a property.

Negative equity
Where the outstanding balance on the mortgage is higher than the value of the property. This means that proceeds from the sale of the property will not be enough to cover the loan.

Net Monthly Payment
This figure will be shown on both the mortgage offer and mortgage completion statement and shows the actual amount of the mortgage payment after MIRAS tax relief has been taken into account

No Claims Discount
No Claims Discount is a term frequently applied in motor insurance, but increasingly in other areas of insurance as well. A 'No claims discount' rewards a policyholder with a claim-free record. The scale of discounts varies from 30% for one claim free year rising in steps to as much as 65% or more after periods of up to six years. The discount is usually reduced by two steps after a claim. Whenever a claim is made under a motor policy, the no claims discount will always be affected unless your insurer can recover its costs from another party. If it can make a full recovery, or is only stopped from doing so by a 'knock for knock' agreement, your no claims discount may not be affected. Similarly if you recover all your uninsured losses (such as accidental damage excess) then your no claims discount may not be affected. But full recoveries are relatively rare because most accidents involve some blame on both sides. Sometimes your no claims discount will be reduced at policy renewal time if a claim is expected to come in, or is still waiting to be settled. The discount may be reinstated when the claim is settled. If you are concerned that one claim will destroy your unblemished 'no claims discount', you can protect it. Many insurers offer 'protected discounts'. For an additional premium, you will be allowed to make up to two claims in a stated number of years without your no claims discount being affected.

Non-Status
Some lenders will offer non-status facilities which allow them to lend without proof of income and sometimes without proof of existing mortgage repayment record. The maximum Loan to Value on these schemes is normally 70% or below and a credit search will usually be carried out

Online Banking
Also known as e-banking, online banking or Internet banking. Major high street banks and previously unknown operators have moved in, in the last year or so, to establish fully fledged Internet banking operations. Early systems relied on dedicated networks which meant you had to log off the Internet and then dial a separate phone number to connect to our bank. Those days are now in the past - internet banking is growing. Web-based banking should mean lower charges, more control over our finances and less need to use bank branches or telephone banking services. It hasn't quite worked out like that yet but it just might!

Overdraft
A facility (usually at a bank or other financial institution) enabling an account holder to borrow up to an agreed amount and often for an agreed time.

Outstanding
When you borrow money with a credit card the amount you have yet to pay back is called the amount outstanding.

Overseas transactions
Purchases you make in a different country appear on a credit card statement in the same way as those made at home. Overseas transactions are charged in pounds sterling at the exchange rate set for the day that details of the sale reach the card issuer

Payee
A person to whom a payment is made.

Part Endowment
This describes a mortgage where only part of it is covered by an endowment policy. The balance could be arranged on an interest only basis or more commonly on a capital and interest basis.

Payment Profile
This is a record held by the Credit Agency on how you pay your credit commitments, loans, TV Rentals, Credit Cards, Mortgage etc. Based on this information other companies determine whether or not you are a good credit risk.

Payment Protection Plan - See A.S.U

Pension Mortgage
This is an interest only mortgage that is supported by a Personal Pension Plan. Interest only is paid to the lender and in addition premiums are paid into a Personal Pension Plan. On retirement a portion of the personal pension fund can be taken as a tax-free cash sum and it is this cash lump sum (or a part of it) which is used to repay the mortgage debt. The disadvantage of this type of mortgage is that the mortgage term must run through to anticipated retirement age (for the younger borrower this could exceed 25 years) and part of the retirement fund is used to repay the mortgage debt. The advantage is that the pension premiums attract tax relief at the borrowers highest rate.

Pep Mortgage
This is an interest only mortgage that is supported by a Personal Equity Plan. Interest only is paid to the lender and at the same time contributions are made to a Pep with the aim that the mortgage debt will be repaid on or before the end of the mortgage term from the proceeds of the Pep. Pep's will be withdrawn on 5th April 1999 and are being replaced by the Individual Savings Account. Existing Pep investments can remain in force and will remain both income tax and capital gains tax free. However, no future premiums will be allowed into a PEP after April 1999.

Permanent Health Insurance (PHI)
This is a type of insurance that will pay a proportion of normal income in the event that the policyholder is unable to work due to accident, sickness or disability. These policies are normally used to replace a percentage of full income rather than just the mortgage repayment but the level of cover can be selected up to certain maximum levels. This type of cover should not be confused with ASU/ASR policies, which will normally only cover the mortgage payment for a limited period of time. PHI policies can be arranged to pay income until a return to work or normal retirement age.

Perpetual Bond
A bond without a maturity date which pays interest indefinitely

Personal Equity Plan
A plan where people over the age of 18 could formerly invest in the shares of UK and other EC companies via an approved plan manager or through qualifying unit trusts and investment trusts and receive both income and capital gains free of tax. Maximum investment amounts were 6,000 for a general PEP and 3,000 for a single company PEP per tax year PEPs were discontinued on 6th April 1999 and replaced by individual savings accounts (ISAs). PEPs in existence were allowed to continue to grow with similar tax privileges.

Personal Loan
Loans available from banks and other financial institutions to private individuals for personal use such as the purchase of a motor vehicle, holiday or similar item. Repayment periods vary from one year to five years. No collateral is asked for or given for the loan.

Personal Pension Plan
Personal Pension Plans are designed to cater for pension planning for the self employed or employed in non-pensionable employment. Contributions made to a personal pension plan are exempt from tax at the persons highest rate of tax and the retirement age may be selected at any time from age 50 to age 75. Up to 25% of the pension fund on retirement may be taken as a tax-free cash sum and it is this tax-free sum which is used to repay the mortgage debt in the case of a Pension Mortgage.

PIN
PIN stands for Personal Identification Number. PINs allow you to use your cards in cash machines. Without the PIN, it is impossible to take out money from a machine. No-one else knows your PIN - not even bank staff or the police - and you should never tell anyone what your PIN is - it's your own secret code!

Plaintiff
The person who issued the summons.

Plus
Plus is a Visa cash machine network. If you have the Plus sign on your card you can take out money from ATMs in the UK and abroad which display the Plus logo.

Power of Attorney
A document which authorises a person to act on behalf of another.

Premium cards
Usually labelled Gold or Platinum Cards, these cards have a minimum salary requirement and sometimes require stricter credit checks. They often carry a higher annual fee than a standard card, but will in return offer added benefits such as higher travel insurance coverage, better customer support, higher credit limits and, of course, a sense of exclusivity.

Property Bond
A bond issued by life insurance companies to investors whose premiums are invested in property.

Redemption penalty/fee (mortgage)
A charge made by the lender if the mortgage is paid off early. Only applies to some mortgages, typically with discounted or fixed rates.

Pyramid Selling Scheme
Pyramid selling schemes normally involve members paying a joining fee and being promised they can recoup their sign up fee (and much more) by persuading their friends, family and strangers to join them. Pyramid selling is illegal. Such money circulation schemes are guaranteed to fail because fresh income can only be generated by the organisation from finding new members to join. Eventually, the whole population of the world will need to sign up to keep the scheme operating. When new members become difficult to find, recent members who've paid their sign up fee find they're getting nothing back in return. The scheme then collapses causing a lot of tears. Legitimate franchising operations and network marketing schemes are not pyramid schemes and should not be confused with these dubious plans.

Redemption penalty/fee (loan)
A charge applied by the lender if the loan is paid off early. Only applies to some loans. The amount is usually equal to 1 or 2 months' interest payments.

Redemption penalty period
A pre-set time period in which a Redemption penalty will be made if the mortgage or loan is paid off or if the borrower wants to change the terms.

Remortgage
To take out a new mortgage without moving. Usually done to switch to a mortgage deal with better terms. It may incur fees that must be set against the benefits of reducing the interest rate.

Repayment mortgage
A mortgage plan where you pay the lender interest and part of the outstanding mortgage each month. At the end of the loan period, the mortgage will be fully paid off.

Retention
This relates to monies withheld by lenders until certain mortgage conditions are met. This will normally relate to repairs or improvements to the property that the lender is insisting on.

Reward cards
Many cards have loyalty or reward programmes associated with using the card. The most common benefits are air miles, cash back on purchases charged to your card, and points accumulation against a future discount on a particular purchase.

Secured loan
Lenders may offer lower interest rates if you secure a loan against your home. This means the lender will have a claim against your home if you default on the loan payments.

Self-certification
This means the applicant declares his or her salary on the application, but does not provide other documentation as proof. Suitable for people who are self-employed, but who can not produce audited reports for the last two years, or for employees where a large part of their income is not guaranteed (bonuses, commissions, etc.) or they do contract work. Self-certification mortgages are only available from some lenders and they carry an interest rate premium.

Smart cards
Smart cards, also called chip cards, are a new type of plastic card which operate with a microchip rather than a magnetic stripe. Chip cards are still in development. Soon, however, the information stored in the chip will be anything from money in an electronic form to personal ID like your passport number or date of birth and details of organisations you might be a member of like a sports club or an insurance firm.

Stamp duty
A tax charged on purchases of property worth more than £60,000. 1% of purchase price over £60,000, 3% on purchases over £250,000, and 4% on properties worth more than £00,000. This tax is only payable when you buy and, under certain circumstances, when you transfer to another party the ownership of a property, not if you remortgage.

Standard variable rate
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 have once the special conditions expire.

Standing Order
Also known as Banker's Order, a Standing Order is an instruction to your bank to make regular payments of a set amount on a set date. With a standing order, you retain control and the bank may vary the amounts being paid only with the account holder's permission. This is unlike a Direct Debit where regular payments can be varied at the request of the person receiving your money (the recipient).

Store Card
Store cards are issued by certain chains of shops, department stores and petrol stations. Store cards are like credit cards, charge cards or budget cards but they can only be used in the shops or group of shops which issue them. Store cards usually carry higher interest rates than the normal, internationally accepted credit cards.

Stored value card
A new type of payment card that is emerging is the stored value card (also called electronic purse). This card will be a plastic alternative to cash for small payments such as buying a paper, a parking ticket or purchases over the Internet.

Student card
A card specially designed for individuals enrolled in universities who may not qualify for a standard card.

Summons
Issued by the plaintiff who intends to sue the defendant for money or property.

Switch
Switch is a UK debit card payment scheme. Once an issuer has joined Switch, it can issue cards which will be accepted at any outlet showing the Switch logo. Similarly, cardholders can use Switch cards to make payments in any shop displaying the logo.

Term assurance
A Mortgage Protection policy (a type of Decreasing Term Assurance) is normally used in conjunction with a repayment mortgage. Normally at a lower premium than Level Term Assurance, this type of policy is designed to provide protection in line with the decreasing sum owed to your lender. If you choose to pay your premiums on a regular basis, these would normally be calculated to be level throughout the term.

Transaction
Transaction is the word used by people in the card industry to refer to a sale, purchase or transfer of money made using a plastic card. There are two kinds of transaction: offline and online. An offline transaction is when the shop assistant takes and imprint of the card and sends a paper voucher of the sale to the bank for processing. An online transaction is when the shop assistant swipes the card through an electronic terminal and the card details are passed by computer directly to a computer at the bank.

Unit Trusts
Unit trusts are collective funds which allow private investors to pool their money in a single fund, thus spreading their risk, getting the benefit of professional fund management, and reducing their dealing costs.

Unsecured loan
Most personal loans are so-called unsecured loans. This means that the lender does not have a particular asset, such as your home, to reclaim if you should stop payments on the loan before it was paid back. However, the lender may still have a rightful claim on any of your possessions up to the loan amount should you not be able to repay the loan.

Valuation
An inspection of the property, normally carried by an independent valuer on behalf of the prospective mortgage lender, in order to give an estimate of the value of the property. A copy of this report is often passed onto the buyer.

Variable rate
An interest rate that can go up as well as down. A change in rate may result in significant changes to your monthly payments, so it is wise to leave enough room in your budget to allow for an increase if taking out a variable rate loan. Changes to the variable rate are determined by the lender.

Visa
Visa is one of the main international credit card payment schemes. Visa does not issue the cards itself but instead runs the money transmission networks which link outlets, acquirers and issuers.

Visa Debit (formally Visa Delta)
Visa Debit is Visa's debit card payment scheme. Once an issuer has joined this scheme, it can issue cards which will be accepted at any outlet showing the Visa logo