CREDIT and FINANCE GLOSSARY I-N

     
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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 £5000 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 Mortgage
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.

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 £5,000 per year (£7,000 in 2000/2001).

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

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 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 £40,000 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.
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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 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<BR> 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

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
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