Annual Management Fee
For certain investments, a charge made
every year for running your fund. It is usually a percentage of
the amount you've built up. <back>
APR (Annual Percentage Rate)
There are many ways that lenders can calculate interest, and
this makes it difficult for comparisons to be made between the
different
mortgage offers. To try to get around this, regulations require
the lender's advertisement or offer to show a percentage rate,
which
takes into account the charges you have to pay as well as interest. <back>
Capital & Interest or Repayment Mortgage
Each payment consists of capital and interest, so that at the
end of the mortgage term the capital, together with the interest
is completely
repaid. Some lenders require a term assurance be taken out to
cover the mortgage in the event of death before the end of the
mortgage
term.
The Financial Services Authority does not regulate mortgages,
or advice on some types of term assurance, although it does regulate
the financial soundness of insurance companies <back>
CAT Standards
were introduced by the Government to help the public understand
which mortgages fulfil standards for low charges, access and
fair terms. <back>
Endowment Backed Mortgage
An interest-only mortgage repaid using an endowment policy as
the investment vehicle. An endowment policy combines life assurance
and
savings. This type of policy is intended, but not guaranteed,
to repay the loan at maturity, but will also repay the loan if
you should
unfortunately die during the term of the policy. Because the
endowment policy may leave a shortfall, many companies offer
review facilities
to ensure that the policy stays on track.
The Financial Services Authority does not regulate mortgages. <back>
Flexible mortgage
The lender may allow you to make extra loan repayments, to underpay,
or to suspend payments for a certain amount of time or to borrow
additional monies. If the flexible mortgage is a capital and
repayment one, some lenders require a term assurance be taken
out to cover
the mortgage in the event of death before the end of the mortgage
term.
The Financial Services Authority does not regulate mortgages,
or advice on some types of life assurance, although it does regulate
the financial soundness of insurance companies <back>
Income Support for Mortgage Interest (ISMI)
ISMI is a benefit payable by the DSS in the event of a change
in personal circumstances that results in a loss of job. For
those
taking out a mortgage after October 1995, the benefit is not payable
for
the first nine months, but thereafter full benefit is payable.
For loans taken out prior to October 1995, benefit is not payable
for
the first two months, then partial benefit is payable for the
next four months before full benefits are paid thereafter. It
should
be noted that the ISMI will only cover interest on the first £100,000
of any mortgage. <back>
Insurance
Homebuyers should consider the following types of insurance:
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Buildings and Contents |
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Your lender will require the
property to be covered by buildings insurance and in some
cases mortgages are conditional on the buildings and contents
insurance
being taken with the lender. |
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Payment Protection
Insurance |
| |
This can be arranged for a
monthly premium. It will cover your mortgage repayments
if you have an accident or are sick or unemployed, usually
up to a period of twelve months. Check the policy carefully
to make sure that you are covered and when you will receive
the money, as some will not start your payments until a
certain period has elapsed. |
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Mortgage Indemnity Insurance |
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This is an important item to
consider when looking at your total mortgage costs. Where
a mortgage exceeds a certain percentage of the valuation
of the property, usually 75%, you may be required to pay
a single fee. This is the Mortgage Indemnity Guarantee
(MIG) fee, which is to cover the lender if you cannot pay
your mortgage and your property is subsequently taken into
possession. The fee varies from lender to lender, but can
be substantial. The fee is normally paid upon completion,
although in some cases it can be added to your mortgage.
This insurance will protect the lender and will not protect
you if your property is subsequently taken into possession
and sold for less than the amount you owe. You will remain
liable to pay all sums owing including arrears, interest
and your lender's legal fees. If a claim is paid to your
lender under such insurance, the insurers generally have
the right to recover this amount from you. There are a
number of lenders, which choose not to charge this fee
to their customers providing certain criteria are met.
Please contact us if you require any clarification or further
information. |
The Financial Services Authority does not regulate advice on general insurance,
mortgage indemnity guarantee policies, accident, sickness and unemployment insurance
policies, and some types of life assurance, although it does regulate the financial
soundness of insurance companies. <back>
Interest Only mortgage
This is a mortgage where interest only is payable and the capital
is intended to be repaid at the end of the term by an appropriate
repayment vehicle such as ISAs, PEPs, pensions or endowment policies.
Thus, the amount of the loan remains relatively constant during
the mortgage term.
The Financial Services Authority does not regulate mortgages. <back>
Interest Rates
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Variable Rate |
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This is the standard interest
rate of the lender. The rate will change whenever the lender
alters its lending rate, going up or down (as do your payments)
in line with market forces. There can be quite a difference
between lenders and it is worthwhile shopping around. |
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Discounted Rate |
| |
This is a specified discount
off the variable rate for a nominated period. Therefore,
during the discounted period, the rate payable will change
whenever the lender changes its variable rate. At the end
of the discount period the rate usually reverts to the
variable rate.
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Fixed Rate |
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The interest rate is fixed
for a specified period at a specified rate. At the end
of the fixed term, the rate will either change to the lender's
variable rate or, subject to the terms offered by the individual
lender, a new rate. |
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Capped Rate |
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The interest rate provided
by the lender is guaranteed not to rise above a specified
level for an agreed period of the loan, but may fall below
it. At the end of this period the interest rate will revert
to the lender's variable rate. |
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Capped & Collared
Rate |
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The interest rate will not exceed a maximum rate (cap) or fall below a minimum
rate (collar) for a fixed period. At the end of the period the rate reverts
to the lender's variable rate. |
ISA mortgage
ISAs are savings accounts that let you save in cash, equities
(bonds, gilts, shares and unit trusts), life insurance policies
or any combination
of the three, without having to pay tax on the income you get
from them or on any gain you make when you sell them. They can
be used
in conjunction with interest only mortgages to pay off the loan
at the end of the term. There are specified limits on how much
can be
paid into the different types of ISAs. If the ISA does not have
a life insurance element, some lenders may require a separate
term
assurance be taken out for the term of the loan.
The Financial Services Authority does not regulate mortgages,
or advice on some types of life assurance, although it does regulate
the financial soundness of insurance companies. <back>
Life Assurance
A general term for life cover, which may or may not include an
investment element, whether mortgage related or not. The Financial
Services
Authority does not regulate advice on some types of life assurance,
although it does regulate the financial soundness of insurance
companies. <back>
Maturity
The word used to describe the date, other than when a claim is
made, on which a contract taken out for a specific length of
time becomes
payable by the product provider. <back>
Mortgage Term
The length of time agreed by the lender for you to repay your
mortgage. <back>
Negative Equity
The value of the asset (e.g. your house) used to secure a loan
is less than the amount of the loan <back>
PEP mortgage
Personal Equity Plans (PEPs) were replaced by ISAs in April 1999.
You can no longer invest new money in a PEP, but can continue
to hold an existing one for as long as you like, or transfer
an existing
PEP to a new provider. They can be used in conjunction with interest
only mortgages to pay off the loan at the end of the term.
The Financial Services Authority does not regulate mortgages. <back>
Pension-Linked mortgage
is an interest only mortgage that uses the lump sum from a personal
pension to pay off the loan amount at the end of the loan term.
As a personal pension benefits from tax relief, a pension-linked
mortgage
is tax efficient, although levels and bases of, and reliefs from,
taxation are subject to change and the value of the tax relief
will depend on the circumstances of the individual investor.
If the pension
arrangement does not have sufficient life insurance linked to
it, some lenders may require a term assurance be taken out to
cover the
loan for the term of the mortgage. The Financial Services Authority
does not regulate mortgages, or advice on some types of life
assurance, although it does regulate the financial soundness
of insurance companies. <back>
Stamp duty
The tax a buyer pays if the property they are buying costs over £60,000.
| Current rates are: |
|
| Up to £60,000: |
no duty is payable |
| £60,001 to £250,000: |
1% of the total purchase price |
| £250,001 to £500,000: |
3% of the total purchase price |
| £ 500,001+: |
4% of the total purchase price |
Levels and bases of, and reliefs from, taxation are subject to change. <back>
Stock Market
Where stocks and shares are bought and sold. <back>
Unit Linked
Your contributions buy units in the selected fund. The value
of the units depends on the underlying assets in the fund. Consequently
the value of your fund can go down or up. There is a wide range
of
funds to choose from: some are relatively low risk and others
can be very speculative. <back>
With Profit
At the end of each year the company declares the reversionary
bonuses (also known as 'regular' or 'annual'). These bonuses
are added
to the value of the fund and once added, cannot be taken away - although
the product provider will usually reserve the right to apply
a 'Market Value Adjuster'. Reversionary bonuses are guaranteed
to be
paid in
full on the contractual maturity date. A Market Value Adjuster
(also known as 'Market Level Adjuster' or 'Market Value Reduction')
is
a type of penalty applied on early encashment. It is usually
applied when the stock market is falling or fluctuating rapidly.
The idea
is to ensure the surrender value received is not unrealistic
when compared with the underlying assets of the fund. A further
bonus
may be paid on the contractual maturity date or on a death claim.
This is called the 'terminal' or 'final' bonus. A factsheet (pdf
file, 105kb) on
with profit policies can be found on the FSA
Consumer Help website. <back>
Authorised and regulated by the Financial
Services Authority (reg. no. 135181).
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR
OTHER LOAN SECURED ON IT.
Written quotations available on request. Loans subject to status and only
available to persons aged 18 and over. Loans are secured on your property
and a life policy may be required. |
Hedgelands Financial Services Ltd, Hedgelands, Abbotskerswell, Newton
Abbot, TQ12 5PW
|
Telephone
0845
165 1280
General Insurance
0845 165 1281
Fax
01626 332622
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|
