Topic 13 - Secured & Unsecured Lending Flashcards
Secured lending
Borrower gives lender the right to take possession of asset if borrower fails to repay loan.
Unsecured loan
The lender has nothing if borrower can’t pay loan back. Interest rates are usually higher though
What is a Mortgagor
A borrower who transfers their property to lender for the duration of loan
What is a mortgagee
The lender
Covenants
It’s a promise from the borrower that they will maintain property to a good condition
Pension mortgages
If you have a personal pension or stakeholders pension. It can be used as a repayment tool for a mortgage as you can release 25% tax free lump sum
Personal pension
Set up by the individual and benefits are based on individuals investments
Stakeholder pension
Low cost pension product that meets government standards on charges and contributions
ISA mortgages
ISA managers calculate the amount of regular monthly repayments are needed to pay off the rest using lump sum
Flexible mortgages
Gives the borrower flexibility on monthly payments. Benefit if going through financial difficulties
CAT-standard mortgages
(Charges, access and terms) are added to mortgage products.
Suits borrowers who want clear limits on charges.
Mortgage indemnity guarantee
(MIG) is an insurance policy that protects lenders when they lend Hight LTV limits and the borrower defaults. The insurance makes up the shortfall.
What is equity release
Releasing the market value of property over the loan secured against it. Existing mortgage would have to be paid off
Lifetime mortgages
- Lender will pay 55% of property value
- Fixed rate because term is unknown
How does home reversion plan work
When the homeowner sells a percentage of their property to a scheme provider.
First charge
Legal right to have first call on a property if borrower defaults on loan
Second charge
New lender takes second charge when Borrower offers property as a security for the second time.
Once property is sold original lender will claim loan back if any surplus, second lender charge will be met
What is Bridging finance
Arranging a loan to finance new property before you have sold existing.
Commercial loans
Loans to business to startup or expand
What is Revolving credit
Customer can borrow more while repaying existing debt
