Personal Finance Flashcards
What is negative equity? (mortgages)
potential indebtedness arising when the market value of a property falls below the outstanding amount of a mortgage secured on it.
What is a Repayment mortgage
Monthly payments are structured over the lifetime of the loan so that at the end of the period both interest and capital have been repaid.
What is an Endowment mortgage?
At the same time as taking out the mortgage, the borrower takes out a life assurance policy with a monthly premium payment. At the time the mortgage ends, the insurance policy matures and repays the full amount of the loan. Advantages and disadvantages - very unpopular now having been sold heavily in the 1970s and 1980s.
What is an interest only mortgage?
Borrowers pay only the interest on their mortgages; the lender assuming that the value of the house will rise allowing the borrower to repay the loan when they sell.
What are the different types of brokers?
- Execution only brokers deal on your behalf but do not provide any advice on which shares to buy
- Advisory brokers - give advice on the right shares to buy or sell but the ultimate decision is in your hands
- DIscretionary brokers - take complete control of your money
What is an ISA?
An Individual Savings Account is a government-devised shelter designed to encourage UK citizens to save more money. It is the successor to personal equity plans (PEPs), introduced by Thatcher. Returns are tax-free but unlike pensions investors do not get tax relief on contributions. However, again unlike pensions, withdrawls are tax-free.
What is efficient market theory?
The theory states that all information about a share is already included in the price. The only thing which will cause a share price to move is genuine ‘news’ which by definition could not have been known about in advance.
