Topic 3 Flashcards
Affordability
An important concept in helping people to choose financial products, based on budgeting and forecasting to help individuals decide what they can afford.
Bank rate
The interest rate the Bank of England uses when it lends money to other banks. Financial services providers take account of the bank rate when they set the interest rates of their own products
Buy to let mortgage
A long term secured loan taken out by a person who is buying a property with the intention of letting it to tenants.
Capital
In relation to mortgages, capital refers to the total amount borrowed
Capital gains tax
A tax payable on the profit made when you sell or give away an asset, e.g. Property or shares. Each person is allowed a certain amount of profit before being taxed on it.
Consumer credit
This is another term used for borrowing. It is important to understand that taking credit means borrowing
Consumer durable
A useful product with an expected long life e.g. A tv or a car
Credit card
A card that allows the holder to make purchases face to face, over the phone or online. Transactions are paid for by the card provider. Card holder repays the amount in one payment or instalments.
Creditworthiness
The extent to which an individual is seen as being likely to pay back any money they borrow.
Default
To fail to repay borrowing when the repayment is due
Discount mortgage
A variable rate mortgage that gives the customer a set discount off the provider’s standard variable rate for an agreed period
Endowment policy
An insurance product that pays out a lump sum after a specified term or if the insured person dies before the end of the term. Used as a way of saving over the long term.
Equity
This has two meanings
When talking about investments, another name for the shares of a company on the stock exchange
When talking about property, refers to the difference between the value of the property and the amount of money still outstanding on the mortgage
Fixed rate mortgage
A mortgage loan whereby the interest rate is fixed for a stated number of years at the beginning of the mortgage. This benefits the borrower if interest rates rise during the fixed period but not if they fall
Hire purchase
A type of secured consumer credit to finance items such as cars and furniture - involves borrower repaying over a number of years. The borrower does not become the legal owner until all repayments have been paid.
Ijara home purchase plan
A form of Islamic home purchase plan. The provider buys the property and then sells the property to the client for the same price under a purchase agreement, repayment spread over a term of up to 25 years. Provider is the registered owner of the property during the repayment.
Inflation
A rise in prices which means the purchasing power of money falls.
Interest rate
The amount, expressed as a percentage, that the financial services provider charges a borrower when it lends money or pays to a saver.
Interest only mortgage
A mortgage loan whereby the monthly repayment covers only the interest on the whole amount borrowed for the whole mortgage period. At the end the borrower still owes the full amount borrowed and must repay this capital sum in one payment
Islamic home finance
Methods of buying a home that are compliant with sharia law, which prohibits receiving or paying interest
Loan forbearance
When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments, instead allowing the customer to stop paying or make reduced payments for a set period.
Loan to income LTI
The radio of the size of the loan to the income of the customer. The lower someone’s income, the less they can borrow.
Loan to value
The ratio of the size of the loan to the value of the property.
Loyalty mortgage
A mortgage loan with specific discounts or incentives for a providers loyal customers, e.g. Those who keep their current account with a provider for a long time.
