Our customer service team will explain everything to you, but if you want to check the meaning of a financial term, it should be listed below.
If you have any further questions, either call us on 01902 585020. Or we can call you back.
If you’re a homeowner you can use the equity you have in your home to help you sort out your finances, finance home improvements and deal with your debts. The wide range of products we offer at Promise Money means we can help find an ideal, affordable solution to suit you.
Credit not paid or not paid when agreed.
Annual Percentage Rate of charge. The true rate of interest charged on a loan taking into account the total cost of interest and other charges e.g. brokers fees/legal fees. The calculation is set out in statutory regulations.
Payments missed on borrowing.
An intermediary who identifies and places customers requiring a loan or mortgage with a lender able to provide it.
BTL – Buy To Let
A property that is purchased with the intention of letting it out to tenants. We offer Mortgages for this purpose. Not all buy to let mortgages are regulated by the Financial Conduct Authority.
Interest rates can go up or down. A capped rate is one which has an upper maximum, but no lower minimum. It can go lower than the upper maximum but not higher, e.g. Capped rate of 5% – can be charged at 5% or below but not above 5%. The capped rate is normally set for a fixed period of time made clear at the outset.
A type of loan where the borrower is given back a sum of money (usually expressed as a percentage (%) of the loan). Used by lenders as an incentive to promote their products. Cashback may need to be repaid if the mortgage is repaid early.
CCJ or CCJs – County Court Judgement
An order of a court against a debtor to pay money owed.
Compound interest is one of the methods to calculate interest on a loan where interest is charged on a regular basis – monthly, weekly etc
If you have a repayment loan you will be reducing the balance each time you make a repayment. However, interest will also be charged on the amount you owe which increases the balance. Provided your repayments are higher than the amount of interest being charged, the balance of your loan will reduce over time.
To make the maths easier, let’s use an example where no repayments are being made.
The compounding effect
For example, say I borrow £250 at an interest rate of 12% per year (1% per month). To calculate the first month’s interest work out 1% of £250 = £2.50, this is then added onto my £250, leaving me a total owing of £252.50.
For the second month I work out 1% of the figure calculated from the first month, so I calculate 1% of £252.50 = £2.52. I then add this onto the £252.50 to get the total owing at the end of the second month as £255.02, and so on. Each month the interest charged on the previous balance is added usually called compounding monthly interest.
Now let’s imagine I am making repayments on the above loan of £5 per month
Using the same example, say I borrow £250 at an interest rate of 12% per year (1% per month). To calculate the first month’s interest work out 1% of £250 = £2.50, this then gets added onto my £250, leaving me a total of £252.50 as before. However, I then deduct my repayment of £5 which reduces the balance to £247.50.
For the second month I work out 1% of the figure calculated from the first month, so I calculate 1% of £247.50 = £2.47.5. I then add this onto the £247.50 to get the total for the second month, £249.97, and so on.
You can see that, at the start of the loan, the balance only reduces by a small amount because most of the repayment is off set by the interest.
However, as the balance reduces, the interest charged is less, and the effect of making repayments reduces the balances faster.
So taking the example above, if the balance had been reduced to £84, the interest charged would be 84 pence making a balance of £84.84.
After deducting the monthly repayment of £5 the balance would reduce to £5 the balance would reduce to £79.84 so you can see that the amount owed reduces much faster towards the end of the loan.
A discounted rate gives a temporary reduction off the standard variable rate (SVR) for a specific set period made clear at the outset, e.g. – standard rate 5%, discounted rate 2% below = 3% is charged. If SVR went up to 7%, discounted rate would become 5%. Once the discounted rate period is over the customer is charged the normal SVR or given the option of considering some other deal from the lender.
Early Repayment Charges
When a loan is settled in full before it’s legal end date lenders make an early repayment charge. Full details of this amount or the basis for calculating it are made clear in the loan offer.
Exchange of Contracts
Agreement signed by house purchaser and vendor committing themselves to the transaction. Once the contracts have been exchanged a legally binding contract is in existence and the purchaser must complete the purchase within a specific period of time.
A life assurance policy that is designed to produce a lump sum to pay off an interest only mortgage. There are a number of different kinds of endowment policies: ‘with-profits’, ‘unit-linked’ etc.
FTB – First Time Buyer
You are buying a property for the first time.
The rate is fixed for a specific number of years, so you know what your payments will be over that period. Following this period, the rate will usually revert to the lender’s standard variable rate.
These give various benefits which usually include the ability to vary payments in line with your circumstances. They may also allow you to take “payment holidays” and to borrow back any overpayment you may have made.
High Street Mortgages
The term used when the lender offers rates in line with High Street interest rates.
The term used when the customer has purchased their home, normally with the aid of a mortgage.
Independent Financial Adviser.
Interest Only Mortgage
With this type of product, your monthly repayments will only cover the interest element of the loan. You will typically set up another repayment vehicle e.g. an endowment or Individual Savings Account (ISA) to repay the capital element of the loan.
Loan to value. This is the size of the loan or mortgage as a percentage of the value of the property or price being paid for the property e.g. A property valued at £100,000 with a mortgage of £90,000 would have an LTV of 90%.
A loan secured on a property. The lender registers a legal charge over the property as security for it.
The formal document signed by the borrower(s) whereby they agree to the lender creating a legal charge over the property. The deed makes reference to the rights and obligations of both parties as detailed in the mortgage offer / loan agreement.
The situation where the amount owed on a mortgage exceeds the value of the property.
Offer of Advance
Sometimes informally known as a mortgage offer. This document details the terms and conditions upon which the lender is prepared to make a mortgage loan. The applicant must sign and return a copy of the offer indicating their acceptance of the proposed terms.
RTB – Right to Buy
A term associated with legislation that gives council house tenants the Right to Buy their homes.
A mortgage which pays off the one already in place. Often used to raise additional funds or to achieve better terms.
Payments on this type of mortgage cover interest and capital. Providing all payments are made in full and on time the mortgage will be settled at the end of the term agreed.
Secured Loan (otherwise known as a second charge mortgage)
This is a loan secured by a property. The property is usually a home or business. It is called a 2nd mortgage because the 1st mortgage is left in place. The legal charge needed by this type of loan ranks 2nd to the main mortgage.
When a loan is taken out it is ‘secured’ on a property, the borrower agrees to the lender creating a charge over the property; the deed makes reference to the rights and obligations of both parties as detailed in the Legal Charge, Standard Security or Loan Agreement. Thus the property is known as the ‘security’.
When taking a secured loan or mortgage, the security address is the address of the property which is being offered as collateral for the loan. Where property is offered as security in this way, lenders are generally prepared to offer more flexible terms and lower interest rates.
The amount needed to settle the loan.
A mortgage from a lender not regarded as being from the mainstream / High St. Loans of this type normally attract a higher than average rate of interest and are becoming increasingly rare in the UK. Reasons why a sub prime mortgage might be considered appropriate include:
- A history of adverse credit
- Someone unable to evidence their income by traditional means e.g. payslips, audited accounts.
Someone who pays rent to a landlord and does not own the property.
A set of documents showing past & present owners of a property. Includes names and details of parties that have registered a charge against the property. Held by the first mortgage lender whilst their charge remains in existence.
A loan which does not demand any security.
A rate of interest which may vary up or down during the lifetime of a loan.