Debt Glossary
DEBT GLOSSARY - A
Abandonment
The voluntary relinquishment of ownership by
failure to use the property, coupled with intent to abandon.
Add on Interest
Add on interest is a method of charging
interest. Interest is computed on the total amount borrowed and added on to the
principal. Each payment is then deducted from this total amount. Interest on
real estate loans is usually figured based on the balance owing after each
payment is made.
Amortization
Amortization is payments of debt in equal
instalments of principal and interest, rather than interest only payments.
Annual Percentage Rate (APR)
The yearly interest
percentage of a loan, as expressed by the actual rate of interest paid.
For
example: 6% add-on interest would be much more than 6% simple interest, even
though both would say 6%. The A.P.R. is disclosed as a requirement of federal
truth in lending statutes and should include all finance charges.
Arrears
A payment made after it is due is in arrears.
Interest is said to be paid in arrears since it is paid to the date of payment
rather than in advance, as is rent.
Arrestment Arrestment
means that money or goods held by a
third party are 'frozen'. The most common example is arrestment of funds in your
bank account. The third party (eg a bank) may agree to hand the property (funds)
over to a creditor.
Asset
An asset is property that belongs to an individual.
Including; real property (land or buildings) and personal property (eg cash,
stocks and shares, or vehicles).
Attachment
Means that goods held by the person in debt,
eg a car, are 'frozen'. Anything that has been frozen ('attached') can be sold.
The money raised is then handed over to the person who is owed the money.
Average life
The length of time that will pass before
one-half of a debt obligation has been retired.
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DEBT GLOSSARY - B
Balance
The amount of money in an account, equal to the
net of credits and debits at that point in time for that account is a
balance.
Bankruptcy
A form of debt relief, there are two kinds of bankruptcy:
Personal bankruptcy;
an individual, sole trader
or partnership is formally declared bankrupt by the court (ie they cannot pay
their debts) and that the debts and assets of a person should transfer to an
appointed trustee.
Company bankruptcy;
companies can also fail and
if this happens, the company is said to be insolvent. It may be made subject to
liquidation, receivership or an administration order issued by the
courts
Beneficial Loan
A loan made by an employer to an employee
on which interest is either not charged or is less than the official rate. The
difference between the interest charged and the official rate is
taxable.
Beneficiary
The Person who is entitled to receive
funds of property under the terms and provisions of a will, trust, insurance
policy or security instrument. In connection with a mortgage loan the
beneficiary is the lender.
Benefits
Benefits are paid to you by the state and
include income support, child benefit, job seeker's allowance, disability
benefit, housing benefit, and council tax benefit.
Binding
For example, an agreement, which is binding
cannot be legally avoided or stopped.
Budget
A list of all your income and expenditure is a
budget.
Budget deficit
A deficit is the gap between spending and
revenue and thus the amount that may need to be borrowed.
Building Society
'Mutual' non-profit-making
institutions set up to lend money to their members for house purchase. Building
societies are 'mutual;' because they are owned by their members, and their
members are entitled to their profits and benefits.
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DEBT GLOSSARY - C
Cap rate
The discount rate used to determine the present
value of a stream of future earnings. Typically this will be an appropriate
risk-free return plus a premium to reflect the risk of that specific
investment.
CashCash
Is currency and coins on hand, bank balances,
and negotiable money orders and checks.Ceiling The maximum interest rate
permitted by state law for a given loan. A ceiling is a common feature of
floating rate notes. An upper limit on the exchange rate of a country's currency
imposed by some regulatory authorities (the government or regulators will step
in and ensure that the exchange rate does not exceed the ceiling).
CEO Chief Executive Officer
Is the executive who is
responsible for a company's operations, usually the President or the Chairman of
the Board.
Citizens advice bureau
An office represented in most
towns in the UK, where the public can obtain free advice on an extensive range
of civil matters including social security, consumer matters such as loans and
rental arrears, employment, housing matters such as mortgage and rent arrears,
legal matters such as legal aid, family matters, taxation and many other
subjects.
Classified Property Tax
Property tax which varies in rate
depending on the use of the propertyCredit Credit is an agreement in which a
borrower receives something of value now and agrees to repay the lender later.
Creditor
A creditor is an individual or a company that is
owed money by another person.
Currency
Any form of money that is in public
circulation
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DEBT GLOSSARY - D
DAS administrator
The Accountant in Bankruptcy is the DAS
administrator. They are responsible for maintaining the DAS Register which
contains details of debt payment programs (DPPs), and for the approval of money
advisers, payments distributors and debt payment programs (DPPs).
DAS approved money adviser
A DAS approved money adviser
is a general money adviser who has received further training (and been approved
by the DAS administrator) to act on behalf of the debtor to negotiate a debt
payment program (DPP) under DAS.
Death Benefit
The
payment made to a beneficiary from an annuity or policy when the policyholder
dies.
Debt
Means any money that is owed or due to someone
else.
Debt Capital
Debt Capital is the capital raised through
the issuance of bonds.
Debt consolidation
Debt consolidation is the replacement
of multiple loans with a single loan, often with a lower monthly payment and a
longer repayment period. It can also be called a consolidation loan.
Debt-equity swap
Debt equity swap is a transaction in
which existing bonds (debt) are exchanged for newly issued stock (equity). For
example, an individual can in essence cancel a portion of their debt and
transfer the equivalent balance to equity. A debt-equity swap can help an
individual that is in financial trouble by cancelling some of their outstanding
debt. Debt management A form of dealing with debt where the debtor can pay their
debts (including interest and penalty charges) in full - they just need a bit
more time. The debtor will keep control of their assets and most importantly
they will keep their home.
Debt payment program (DPP)
An agreement under the Debt
Arrangement Scheme (DAS) that allows you to pay off your debts over an extended
period of time. The program can be for any amount of money or for any reasonable
length of time.
Debt relief
The last resort for a debtor when dealing
with debt where the debtor cannot pay their debts - bankruptcy. The debtor will
lose control of their assets, possibly including their home and their credit
rating will be greatly affected.DebtorA debtor is an individual or sole trader
who owes money to another person or company (creditor).
Deduction
An
expense subtracted from adjusted gross income when calculating taxable income,
such as for state and local taxes paid, charitable gifts, and certain types of
interest payments.
Default noticeThis is a letter reminding a debtor that
they haven't paid their debt. This must be issued by a creditor in respect of
debts covered by the Consumer Credit Act 1974 before any further action is
taken.
Demand
The lender's statement of the amount due to pay of
a loan.DiligenceWe all rely on people keeping their promises. If a promise is
not kept the courts may order someone to pay what they are due.
There are a
number of ways that people can be made to pay after a court order has been made.
The most common forms of court enforcement, or diligence, are arrestment ,
earnings arrestment and attachment. There are other less common ways to enforce
court orders. They include inhibition and adjudication, and your lawyer or
adviser can tell you more about them if needed.
Diligence stopper
A court order which stops the operation
of existing diligence and prevents future diligence.
Direct debit
An instruction you give to your bank or
building society to make regular payments from your account to a specific
company. Unlike a standing order you agree that the creditor can vary this
amount each month.
Disclaimer
A statement made to free oneself from
responsibility.
Discounted loan
A loan on which the interest and
financing charges are deducted from the face amount when the loan is issued.
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DEBT GLOSSARY - E
Earnings
Revenues minus expenses and taxes. Also called
income.
Earnings arrestment
If you are working, the money you owe
to a creditor can be taken from your wages/salary directly from your employer by
an earnings arrestment.
Endowment
A permanent fund bestowed upon an individual or
institution, such as a university, museum, hospital, or foundation, to be used
for a specific purpose.
Entitlement
Benefits guaranteed to an individual, such as
dividends for shareholders or government aid for those who qualify.
Equity
The value of a person's interest in real property
after all liens and charges have been deducted.
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DEBT GLOSSARY - F
Fee
A charge for services rendered
Final Salary
The basis of determining a person's pension
entitlement in a final salary scheme and which normally refers to an
occupational pension
Finance
Finance deals with matters related to money and
the markets.
Flexible Mortgage account
A combined mortgage and current
account. Any savings each month earn the mortgage rate, which is a relatively
high and tax-free rate of return.
Frozen account
A bank account whose funds may not be
withdrawn until a lien is satisfied or an ownership dispute is resolved.
Funds
A pool of money normally set apart for a purpose,
for example, a pension fund to provide pensions.
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DEBT GLOSSARY - G
Gold Card
A plastic payment card which normally allows
the holder higher spending limits over the standard card. Also loan facilities
are sometimes available. People who hold such a card are often required to be
earning a minimum salary level. Gold cards are usually either charge cards or
credit cards.
Grace period
The period, normally 30 days, during which
an insurance policy remains in force even though the premium has not been
paid.
Grant
Funding for a non-profit organization, usually for
a specific project.GranteeOne to whom a grant is made.
Gross Income
The scheduled (total) income, either actual
or estimated, of a person before deductions. This for example could be a
person's salary plus bonuses, plus benefits in kind (e.g. company car and
medical insurance) plus income from shares etc.
Growing Equity Mortgage (GEM)
A fixed rate, graduated
payment loan allowing low beginning payments and a shorter term because of
higher payments as the loan progress. Based on the theory of increasing income
by the buyer and, therefore ability to make higher future payments.
Guarantee
A commitment made by a person to be
answerable for the debts or liabilities of another.
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DEBT GLOSSARY - H
Hidden asset
Asset not immediately apparent from a
balance sheet.High equityA mortgage which is low in comparison to the amount
deposited in cash by the purchaser.
Hire purchase (HP)
The pre-agreed purchase of an asset
where the asset e.g. computer is in your possession as long as repayments are
kept to. Once enough payments are made, the asset becomes your property.
Holder
A person in possession of a negotiable instrument
such as a bill of exchange or promissory note. That person may be the payee or
the endorsee.
Or a person who has made an opening purchase of an option and
thus has acquired the rights to them.
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DEBT GLOSSARY - I
Incapacity benefit
A state benefit payable after the
expiry of state sickness benefit if a person is still unfit to work. This
replaces the former invalidity benefit and as such carries a reduced level of
benefit.IncomeMoney received by an individual as a salary, or from investments.
Cash deposits and bonds will provide income in the form of interest. This income
is subject to income tax.Income from propertyIncome received from property
letting is subject to income tax. The amount taxable is the amount receivable in
the tax year. If an owner, occupier or tenant rents out a room he may receive up
to a certain annual income without incurring a tax liability.
Income tax
In most countries income tax is progressive on
successive slices of income, so that the more you earn the higher the
incremental rates of tax you pay.
In the UK, everyone is allowed to make a
certain amount of income before any tax is payable. Known as the 'personal
allowance', the amount increases with age, and for the year 2005-2006 the
figures are:
- Under 65: £4,895
- 65-74: £7,090
- 75 and over: £7,220
If your income in a tax year is below these thresholds, you are not liable
for income tax. In some circumstances, where tax has been deducted at source,
you will be able to reclaim tax already paid.
For earnings above your
personal allowance, your income tax liability will go up in bands and vary
according to whether the income is from employment, share dividends or interest.
The lowest rate is 10% and the highest is 40%.Inflation The overall general
upward price movement of goods and services in an economy. Over time, as the
cost of goods and services increase, the value of the pound is going to fall
because a person won't be able to purchase as much with that pound as he/she
previously could.
Inland Revenue
The government department responsible to
the Treasury for the collection of direct taxes which include income tax,
capital gains tax and inheritance tax etc.Insolvent
Unable to meet debt
obligations.Instalment
The regular periodic payment that a borrower agrees
to make to a lender.
Insured Mortgage
A mortgage insured against loss to the
mortgagee in the event of default and a failure of the mortgaged property to
satisfy the balance owing plus costs of foreclosure.
Interest
The fee charged by a lender to a borrower for
the use of borrowed money, usually expressed as an annual percentage of the
principal; the rate is dependent upon the time value of money, the credit risk
of the borrower, and the inflation rate. Here, interest per year divided by
principal amount, expressed as a percentage. also called interest rate.
Interest Cap
The maximum interest rate increase of an
Adjustable Mortgage Loan. For example: a 120% loan with a 5% interest rate cap
would have maximum interest for the life of the loan which would not exceed
17%.
Interest Rate
The percentage rate at which interest is
charged on a loan or paid on savings etc.
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DEBT GLOSSARY - J
Joint
Pertaining to multiple parties on the same side of
an agreement or transaction.
Joint account
Typically a bank or brokerage account in
the names of two (or more) people. Arrangements can be made such that either
individual or all signatures are required when drawing checks/cheques.
Joint liability
The legal liability of two or more people
for claims against or debts incurred by them jointly. If three people have joint
liability and are indebted to another party, they may only be sued as a group
and not individually.
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DEBT GLOSSARY - L
Late charge
A charge imposed by a lender to a borrower
when the borrower fails to make payment on the due date.
Laundry (money)
The manipulation of money obtained in a
wrongful manner, for example theft, so as to seem to have originated from a
lawful source. An example is to pay the unlawful money into an overseas bank and
subsequently transfer back to the country of origin.
Lease
A contract in which the legal owner of property or
other asset agrees to another person using that property or asset in return for
a regular specified payment (known as rent) over a set term. In addition to
buildings, other items such as cars and computers are often leased in order to
avoid capital costs in the running of a business.
Legacy
Another term for bequest, that is, the making of a
gift by will. In the main there are three main types of legacy.
- Pecuniary legacy: A gift of a fixed sum of money left for example to an
individual or a charity.
- Specific legacy: A gift of a specific item (such as a set of books) left for
example to a friend.
- Residuary legacy: A gift consisting of the residue of an estate after all
other conditions of the will have been met, or part of such residue.
Lender
A person or company that offers to lend
money to a borrower for a given period of time. The borrower is obliged to repay
the loan either by instalments or single payment together with specified
interest.
Liability
The debts of a person or company
Liability Insurance
Insurance against legal liability to
pay compensation and court costs where the insured has been found negligent in
respect of injuries sustained by another person or damage to his/her
property.
Life assurance
An insurance policy which, in return for
the payment of regular premiums, pays a lump sum on the death of the insured. In
the case of policies limited to investments which have a cash value, in addition
to life cover, a savings element provides benefits which are payable before
death. In the UK endowment assurance provides life cover or a maturity value
after a specified term, whichever is the sooner.
Liquid Assets
Cash plus assets which can readily be
converted into cash.
Liquidated Damages
A definite amount of damages, set
forth in a contract, to be paid by the party breaching the contract. A
pre-determined estimate of actual damages from a breach.
Loan
An advance of money from a lender to a borrower over
a period of time. The borrower is obliged to repay the loan either at intervals
during or at the end of the loan period together with interest.
Loan Account
An account, opened for a customer by a bank,
following the granting of a loan. The amount of the loan is credited to the
customer's current account and similarly debited to the loan account. An
arrangement is subsequently made for the customer to repay the loan, usually
over a stated period of time, with interest additionally being paid on the
outstanding amount.
Loan Policy
A title insurance policy insuring a
mortgagee, or beneficiary under a deed of trust, against loss caused by invalid
title in the borrower, or loss caused by invalid title in the borrower, or loss
of priority of the mortgage or deed of trust.
Loan
ratio
The ratio, expressed as a percentage, of the amount of a loan
to the value or selling price of real property. Usually, the higher the
percentage, the greater the interest charged. Maximum percentages for banks,
savings and loans, or government insured loans, is set by
statute.
Loan Sharking
Charging an illegally high
interest rate on a loan.
Lower earnings limit
The level of income at which
employees start to pay Class 1 National Insurance contributions.
Limited (LTD)
'Ltd' after a company name indicates that
the company is privately owned with 'limited liability' status. This means that
the directors of the company are not liable for the company's debts if it goes
bust. Nearly all newly-formed companies in the UK are incorporated as Ltd
companies. If the number of shareholders in the company grows to 50 or more, the
company changes to a 'plc' - public limited company, though this does not mean
that their shares are publicly tradeable. Only companies that formally list
their shares on the Stock Exchange are fully tradeable.
Lump Sum
A sum of money paid in a single instalment.
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DEBT GLOSSARY - M
Maximizing income
Increasing the amount of income you
earn.
Money adviser
Someone who is trained to offer advice both
on debt and on increasing your income. A money adviser can help you work out
what your options are and, where needed, negotiate affordable payments and set
up repayment plans with your creditors.
Money Broker
A type of agent who arranges short term
loans between banks (which are seeking to lend money) and borrowers such as
institutions. The money broker is not involved in the process of
lending/borrowing but merely acts as an intermediary earning a commission.
Mortgage
A loan in which the borrower (the mortgagor)
offers a property and land as security to the lender (the mortgagee) until the
loan is repaid. Repayments of the loan are usually made on a monthly basis over
a long period of time, typically 25 years. In the UK, the most common forms of
mortgage are the repayment mortgage and the interest only mortgage.
Mortgage Broker
A person or company engaged in the
arrangement of mortgages for buyers. The broker is usually paid a commission by
the lender.
Mortgage Protection
Term assurance to cover the repayment
of a mortgage in the event of the death of the mortgagor during the period of
the loan.In the case of a repayment mortgage the capital sum outstanding is
gradually reduced over the term of the loan (albeit slowly during the initial
years when the majority of the repayments are paying the interest) so that
decreasing term assurance would be incorporated in the policy. For an endowment
mortgage where the sum assured and the death benefit are at least equal to the
amount of the loan throughout the term of the loan, level term assurance would
be apt.
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DEBT GLOSSARY - N
National Debt
The total debt accumulated by a government
through the issue of government bonds, Treasury bills and Treasury notes. The
government has to pay interest on its borrowings, and this obligation is one of
the major budget items for many governments.
National Insurance
A form of taxation, payable by
employees, employers and the self employed, which is notionally to fund state
benefits including pensions, sickness, unemployment and maternity. It is part of
the state's social security system and ultimately controlled by the Department
of Social Security.
Negative equity
A situation where the purchaser of a
property has taken out a mortgage and some time after the purchase, the value of
the property falls below the mortgage amount.
Negotiable
The ability to be sold or transferred to
another party as a form of payment. Something which is negotiable is
transferable by endorsement and delivery. A negotiable instrument could be a
check made out to you, because you could endorse it for payment to you or
transfer it to someone else as payment to them.
Net/after deductions
An amount of money e.g. income you
take home after income tax, national insurance contributions, payments towards a
pension scheme or any other deductions have been deducted, usually by your
employer when you get paid.
Net assets
Total assets minus total liabilities of an
individual or company.
Net IncomeNet profit attributable to ordinary
shareholders after the deduction of all other charges.
Nominee
The person, bank or brokerage in whose name
securities are transferred.
Notarization
The certification by a Notary Public that a
person signing a document has been properly identified. Notarization does not
certify the content of a document, only validity of signature.
Notary Public
A person authorized to notarize certain
documents.
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DEBT GLOSSARY - O
Obligation bond
Mortgage bond whose face value exceeds
the value of the underlying property, and for which a personal obligation is
created to compensate the lender for any costs that may exceed the value of the
mortgage.
Ombudsman
Ombudsmen do not have any formal power to
reverse decisions but they have substantial moral authority over companies or
national or local government agencies.
Within financial services, there are
different Ombudsmen for banking, building societies, insurance, pensions, and
investments.
If you have a complaint about your treatment by a financial
services company, the first thing you should do is make the complaint directly
to the compliance officer or senior management of the company. If the outcome is
unsatisfactory, you can then take it to the Ombudsman who will investigate and
consider all the facts of the case, and make a recommendation. The company will
not always follow the Ombudsman's recommendation, but usually will.
Open end mortgage
A mortgage permitting the mortgagor to
borrow additional money under the same mortgage, with certain conditions,
usually as to the assets of the mortgage.
Ownership
Rights to the use, enjoyment, and alienation of
property, to the exclusion of others. Concerning real property, absolute rights
are rare, being restricted by zoning laws, restrictions, liens, etc.
Open interest
The net amount of outstanding open
positions, either long or short, in a given futures or options contract.
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DEBT GLOSSARY - P
Pass book
A book of recorded transactions in a savings
account, issued by banks and building societies in the UK in which a customer's
deposits, withdrawals and interest are entered. The book is retained by the
customer to give an indication of the running balance.
Partial Release
Partial Release is a mortgage provision
allowing some of the pledged collateral to be released if certain requirements
are met.
PAYE (Pay as your earn)
People who earn income from
employment or who receive a pension are liable for income tax under the PAYE
system.
Taxable pay(gross salary less pension contributions less allowances)
is used by the employer to calculate a person's income tax (according to his/her
notice of coding) which is passed to the Inland Revenue usually monthly or
weekly. This ensures that employees pay their income tax on a regular basis.
Payment Cap
A Payment Cap is the maximum amount for a
payment under an Adjustable Mortgage Loan, regardless of the increase in the
interest rate. If the payment is less than the interest alone, negative
amortization is created.
Pension Mortgage
A personal
mortgage is a type of personal pension plan which utilises the tax free lump sum
entitlement from the pension fund at retirement age to repay a mortgage whilst
the remainder is used to provide a pension. Throughout the mortgage term the
borrower pays interest to the lender such as a building society or bank whilst
additionally making payments into the pension scheme. Tax relief is allowable on
both the interest payments to the lender and on the contributions to the pension
scheme which makes this type of plan attractive.
Personal allowance
Tax allowances are concessions by the
Inland Revenue which can be used to reduce a person's Taxable Income. The main
allowance for UK taxpayers is the 'personal allowance'; which is an amount of
income that is tax free. In the tax year 2005-2006 the personal allowances
are:
- Under 65: £4,895
- 65-74: £7,090
- 75+: £7,220
The personal allowances for elderly people are reduced if their total income
exceeds £19,500, and the amount of the reduction if £1 for every £2 of the
excess. So someone aged 68 with a Total Income of £19,800 would get a personal
allowance of £7,090 less £300 = £6,790.
Personal Equity plan
A plan where people over the age of
18 could formerly invest in the shares of UK and other EC companies via an
approved plan manager or through qualifying unit trusts and investment trusts
and receive both income and capital gains free of tax.
Personal Income
Personal income is a person's total
income which includes salary, transfer payments, dividend and interest
income.
Personal Loan
Loans available from banks and other
financial institutions to private individuals for personal use such as the
purchase of a motor vehicle, holiday or similar item are personal loans.
Repayment periods vary from one year to five years. No collateral is asked for
or given for the loan.
Personal possessions
The personal possessions of a
deceased person which pass to the beneficiary or beneficiaries of the residue of
estate unless otherwise stated in the will.
Postal
Account
In the UK, a personal account is a building society account
in which all transactions are conducted via post. In some cases a pass book is
used to record deposits and withdrawals although societies are increasingly
acknowledging each of their customer's transactions with a single statement
sheet which depicts the amount deposited or withdrawn and the resulting account
balance
Pound cost average
In the UK, the regular investing of
fixed amounts over regular periods, typically monthly, in order to accumulate
holdings in securities such as shares, unit trusts and investment
trusts.
When for example a unit trust price or investment trust price has
fallen more units or shares can be purchased for that month. Similarly when the
price rises then fewer units or shares can be purchased.
Over a period of a
few years, the average price paid will be lower than the average share price for
that period since more shares are bought at the lower price and fewer at the
higher price.
Power of attorney
A document which authorises a person to act on behalf of another is a power
of attorney.
Privatization
The sale of government-owned equity in
nationalised industries or other commercial enterprises to private investors is
the act of privatization.
Property Tax
Local tax assessed on property owned, such
as real estate or automobiles.
Public Sector Net Cash Requirement
Formerly known as Public Sector Borrowing Requirement (PSBR), PSNCR is the
difference between the expenditure of the public sector and its income.
Where
there is a deficit it is financed by borrowing - principally via the sale of
government gilt edged stocks (gilts).
Public sector net borrowing also
measures the difference between the expenditure and income of the public sector
but differs from the net cash requirement in that it is measured on an accruals
basis whereas the net cash requirement is mainly a cash measure.
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DEBT GLOSSARY - Q
Quick assets
Cash and other assets which can or will be
converted into cash fairly soon, such as accounts receivable and marketable
securities; or equivalently, current assets minus inventory.
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DEBT GLOSSARY - R
Real Asset
An asset that is valuable because of its
utility, such as real estate or physical equipment.
Receiver
A person appointed by a court to finalize the
affairs of a company and to utilise assets to pay its creditors
Re mortgage
To re mortgage is arranging alternative
finance for the purchase of a property which is already mortgaged.
Repayment Mortgages
A mortgage where throughout the term,
regular payments are made to partly repay interest on the capital and to partly
repay the capital itself (the amount of the loan).
Initially the largest
proportion of the repayments will be used to pay interest since the capital
amount outstanding is at its highest value. Therefore over the initial years the
capital will not reduce very much. However as the years proceed more and more of
the monthly repayments will be applied to reducing the capital until towards the
end of the term the large proportion will be paying off capital and a small
proportion paying interest.
Revenue Account
An investment trust term referring to
analysis of investment income.
Reverse Mortgage
An arrangement in which a homeowner borrows against the equity in his/her
home and receives regular monthly tax-free payments from the lender.
Roll over mortgage
Mortgage for which the unpaid balance
is refinanced every few years at then-current rates is a roll over mortgage.
This is good for the borrower and bad for the lender if interest rates are
falling, and bad for the borrower and good for the lender if interest rates are
rising.
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DEBT GLOSSARY - S
Salary
Wages received on a regular basis, usually weekly
or monthly. Sometimes the term is used to include other benefits, including
insurance and a retirement plan.
Savings account
An account with a bank or
financial institution which pays interest on balances held, usually once or
twice per year, the amount of interest paid usually depends on to the amount of
money in the account and the 'base rate' of the Bank of England. There is often
a notice period required for withdrawals and in most cases the longer the notice
period, the higher the interest rate.
Second Mortgage
A second mortgage is taking out a
mortgage on a property which is already mortgaged. This can be used to raise
capital if the property has significantly increased in value and would involve
finance companies rather than banks or building societies. Since the first
mortgagee (lender) usually holds the deeds of the property, the second mortgagee
will carry a higher risk and thus charges a considerably higher rate of
interest.Secured BondA bond which is secured by the guarantee of assets or
collateral is a secured bond.
Secured loan
A loan which is backed up by assets
belonging to the borrower (normally property) in order to decrease the risk
taken on by the lender. Mortgages and some personal loans are secured loans. If
you don't maintain your repayments, your property can be at risk of
repossession.
Self assessment
From April 1996 all taxpayers in the UK
are obliged by law to maintain records of their income and all types and capital
gains so as to enable annual tax returns to be completed. This is known as Self
Assessment. In April each year the Inland Revenue sends out almost nine million
self assessment forms to taxpayers.SequestrationThe Scottish legal term for
personal bankruptcy is sequestration. This is where an individual, sole trader
or partnership is formally declared bankrupt by the court (ie they cannot pay
their debts) and that the debts and assets of a person should transfer to an
appointed trustee.
Sole trader
An individual proprietor of the simplest form
of business, e.g. a shop owned and run by a single person.
Standing order
An instruction you give to your bank or
building society to make regular payments from your account to a specific
company. This is a fixed amount unlike a direct debit which can
vary.
Surplus income
This means the amount of money which you have left
over when you subtract necessary expenditure from your income.
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DEBT GLOSSARY - T
Tax credits
Tax you receive back in certain
circumstances, e.g. pension credit, child tax credit and working tax credit.
Tax Codes
Under the PAYE system of taxing income, tax
codes are allocated annually to employees. These codes enable the employer to
deduct tax at the correct rate from salaries or wages on a monthly (or weekly)
basis for remittance to the Inland Revenue. Most codes show a number followed by
a letter. The number refers to the amount of salary payable free of tax (for
example if a person's code is 45OH, the tax free allowance will be between
£4,500 and £4,509 that is, the first three numbers of the net allowances form
the number of the code).
The letter denotes that various personal and other
allowances are included.
Taxable earnings
The amount of an individual's annual
income on which tax is payable defined as: Taxable earnings = Income - Reliefs -
AllowancesThird PartyA third party is the person who claims against an insured
person when loss or damage to property or injury has occurred as a result of the
insured person's negligence.TrusteeA trustee is the person who claims against an
insured person when loss or damage to property or injury has occurred as a
result of the insured person's negligence.
Trust deed
A form of debt relief where you're unable to
pay your debts but have money tied up in assets, such as a house. Creditors can
agree that you give everything you own to a trustee (usually an accountant) and
sign a trust deed, which is legally binding. The trustee offers to pay your
creditors as much as possible of what you owe them from the value of your
assets. If it is a protected trust deed then the trust deed is a diligence
stopper.
Trustee in bankruptcy
One appointed by a bankruptcy
court, and in whom the property of the bankrupt vests. The trustee holds the
property in trust, not for the bankrupt, but for the creditors.
Trustor
The borrower under a deed of trust is a
trustor.
Trustee
Usually an accountant (a qualified insolvency
practitioner), a trustee acts for the creditors by managing the trust deed when
a debtor agrees to sign over their assets into a trust deed or when they are
declared bankrupt.
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DEBT GLOSSARY - U
Unsecured creditor
A creditor who does not hold security
(such as a mortgage) for money owed.
Unsecured Loan
An unsecured loan is a loan where the
lender has no entitlement to any of the borrower's assets in the event of the
borrower failing to make the loan repayments. Such a loan normally carries a
higher interest rate than a secured loan.
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DEBT GLOSSARY - V
Value
The worth or desirability of something expressed as
an amount of money.
Variable interest rate
Interest rates offered by banks
and financial institutions on loans or deposits which are liable to change
according to circumstances. For example a movement in the interest rate set by
the government would usually be an influence.
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DEBT GLOSSARY - W
Wrap around mortgage
A second or junior mortgage with a
face value of both the amount it secures and the balance due under the first
mortgage. The mortgagee under the wrap-around collects a payment based on its
face value and then pays the first mortgagee. It is most effective when the
first has a lower interest rate than the second, since the mortgagee under the
wrap-around gains the difference between the interest rates, or the mortgagor
under the wrap-around may obtain a lower rate then if refinancing.
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