Glossary of Terms

Glossary of Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

The FSA do not regulate some forms of mortgage.

ADL - Activity of Daily Living

The payment under a Long Term Care policy will depend on the inability to perform certain activities of daily living. The ADLs will be defined within the policy document.

Accident, Sickness And Unemployment Protection Policy

A policy designed to provide a regular benefit every month for a set period in the event of you being unable to work due to accident, sickness or involuntary unemployment. This would enable your mortgage payments to be met in the absence of other sources of income.

Annual Management Fee

The charge made every year for running a fund.

Annuity

An income generated from a lump sum payment. An Annuity usually pays out until you die although you can have temporary and guaranteed annuities.

APR - Annual Percentage Rate

This figure is calculated taking into account the total interest payable on your mortgage together with any additional charges which may include, amongst others, arrangement fees, a higher lending charge, legal or valuation costs incurred by the lender. It is designed to allow you to compare products with all the costs included.

Arrangement Fee

A fee charged by a Mortgage Lender when applying for a mortgage.

AVC - Additional Voluntary Contributions

Additional payments into your existing Company Pension Scheme.

Basic State Pension

Payment provided by the Government. The amount payable is dependent on the National Insurance Contributions made while at work.

Buildings Insurance

A policy that covers the cost of repairing a house if it is damaged by any of the means listed in the policy.

Capital and Interest Mortgage

Also known as a Repayment Mortgage. A mortgage where you repay to the lender on a monthly basis a mixture of capital and interest from day one and where the amount of loan outstanding gradually diminishes over the term of the mortgage.

Capped And Collared Interest Rate

The term ‘capped and collared’ interest rate means that the rate of interest payable on your loan will not rise above or fall below specified upper and lower limits for a specified period. Whilst this will save you money if the lender’s standard rate rises above the ‘cap’ rate, it will equally prevent you from saving money if rates fall below the ‘collar’ rate. At the end of the specified period the interest rate payable on your loan will be the lender’s standard variable rate.

Capped Interest Rate

The term ‘capped interest rate’ means that the interest rate payable on your mortgage is guaranteed by the lender not to rise above a stated level for a specified period. At the end of this period the interest rate payable will be the lender’s standard variable rate. If this is higher than the capped rate then your monthly payments will increase.

Capital Gain

The profit made on an Investment.

Capital Gains Tax

Tax payable on Capital Gains over Ł9,600 (2008/09). Taxed as the top up slice of personal income, i.e. 20% or 40%.

CAT Standards

Standards set by the Government setting the level of charges, access rules and fair terms for products.

Collective Investment

An investment where a number of people pool their money to invest. An example would be a Unit Trust.

Convertible Term Assurance

A Term Assurance policy which can be extended or converted into an Endowment or Whole of Life Policy.

Critical Illness Cover

A type of cover whereby a payment is made on diagnosis of certain critical illnesses rather on death.

Deferred Interest Rate

The term ‘deferred interest rate’ means that for an initial period the amount of interest payable by you will be less than the standard rate. The difference between the amount that would have been paid and the amount actually paid is added to the original amount borrowed. At the end of the deferral period the monthly repayments will increase so as to repay the interest due on the original loan, plus the unpaid interest accrued during the deferral period.

Disbursements

Disbursements are additional charges payable when arranging a mortgage. These could include such things as stamp duty, land registry charges and search fees.

Discounted Interest Rate

The term ‘discounted rate’ means the rate charged after a specified discount has been applied to the lender’s standard variable rate. The discounted rate will apply for a specified period and may increase or decrease as the lender’s standard variable interest rate itself increases or decreases.

Earmarking

The allotment of a percentage of Pension Benefits to a spouse in a divorce settlement.

Endowment Assurance

A Life Assurance policy which includes an element of investment.

Endowment Mortgage

A mortgage where interest only is paid during the term of the mortgage. An Endowment Policy is also effected to help repay the capital borrowed at the end of the term.

Equivalent Value

The inclusion of pension rights with other assets when dividing assets in a divorce.

Family Income Benefit

A Term Assurance that pays out a regular income rather than a lump sum, if you die within the Term. The income is paid until the Term expires.

Final Salary Scheme

Company pension scheme where your pension is based on the number of years membership of the scheme and your final salary.

Fixed Interest Rate

The term ‘fixed interest rate’ means that the interest rate is guaranteed to remain unchanged for a specified period. Upon expiry of the fixed interest rate period the interest rate applicable to your mortgage will usually change to the variable rate prevailing at the time or, subject to the terms applied by the lender, to a new fixed rate.

Flexible mortgage

A mortgage that allows you to make over payments, under payments or to suspend payments for a limited period.

FSAVC - Free Standing Additional Voluntary Contribution

Similar to Additional Voluntary Contributions (AVC) but the payment is made into a separate fund from the Company Pension Scheme

Fund

A collection of investments.

Fund Manager

Someone who invests money and manages a portfolio of investments such as unit trusts.

Gilts

Bonds issued by the United Kingdom Government, that can be bought or sold on the Stock Market.

Group Personal Pension (GPP)

A number of Personal Pension Plans set up together. These can offer additional benefits over individual plans.

Higher Lending Charge (HLC)

If your mortgage exceeds a certain percentage of the valuation of the property a Higher Lending Charge (HLC) premium may be payable. This premium is a single payment required to be paid to the lender upon completion of the mortgage transaction. The Lender may use part or all of this charge to purchase an insurance policy which will protect them in the event of the lender having to take your property into possession.

IFA - Independent Financial Adviser

An IFA is not limited to advising on the products of a particular company.

Individual Savings Account (ISA)

Tax exempt investment that may contain Cash and Equities or a combination of the two.

Interest Only Mortgage

An interest-only mortgage is where your monthly payment to the lender consists only of the interest on the loan with no element of ongoing repayment of capital. There are a number of different forms of investments that can be linked to the mortgage to facilitate its repayment. These are life assurance linked, ISA (or other investment) linked or Pension Linked.

Investment Trust

A company that invests in the shares of other companies. If you invest in an investment trust, you are buying shares in the investment trust itself.

ISA Mortgage

An interest-only mortgage where the repayment vehicle is an ISA.

Level Term Assurance

The simplest form of Life Assurance, it pays out if you die during the Term of the policy.

Life Assurance

A general term for Life Cover, which may or may not include an investment element.

Life Assured

Person whose life is covered by an assurance policy.

Long Term Care Assurance

A policy designed to pay for domiciliary or nursing home care for people who are no longer capable of looking after themselves without assistance.

Money Purchase Scheme

A pension scheme set up by an Employer where the pension payable depends upon how much has been contributed and the investment performance of the fund.

National Insurance

A Government deduction from your pay used to provide certain State Benefits.

National Savings and Investments

A range of savings products that the Government issues, available at Post Offices. A very low risk investment. (The FSA do not regulate National Savings and Investments)

Occupational Pension

A Pension Scheme setup by an Employer.

OIEC - Open Ended Investment Company

An investment which allows people to pool their money enabling them to invest in a wide range of investments. Like a Unit Trust, it is open ended (i.e. the size of the Fund is not fixed), and your money buys shares in the Company managing the Fund instead of buying units.

Pension Mortgage

An interest-only mortgage where the repayment vehicle is a Personal Pension.

Pension Splitting

The transfer of pension benefits to a spouse as part of a divorce settlement.

PEP - Personal Equity Plan

A tax exempt investment wrapper. PEPs were replaced by ISAs in April 1999. All PEPs have now been automatically transferred to ISAs.

PEP Mortgage

An interest-only mortgage where the repayment vehicle is a PEP.

Permanent Health Insurance

This cover provides regular income to help you maintain an acceptable lifestyle if you suffer a prolonged illness that stops you working.

Personal Pension

A Pension that anyone can take out on a personal basis.

Premium

The amount of money paid for an insurance policy.

Premium Holidays

A suspension of premiums being paid into a Personal Pension Plan.

Premium Waiver

Benefit that can be added to a policy to ensure that premiums are paid in the event that you cannot work because of illness or injury.

Private Medical Insurance

Cover to provide treatment immediately or at a time that is convenient for you, if you suffer an illness or injury.

Renewable Term Assurance

Term Assurance that has the option to renew at the end of the initial term.

Repayment Mortgage

Also known as a Capital and Interest Mortgage. A mortgage where you repay to the lender on a monthly basis a mixture of capital and interest from day one and where the amount of loan outstanding gradually diminishes over the term of the mortgage.

Second State Pension - S2P

An additional State Pension that is paid for from National Insurance contributions. The S2P has replaced SERPS.

SERPS - State Earnings Related Pension Scheme

An additional State Pension that is paid for from National Insurance contributions. Now replaced by the State Second Pension.

Stakeholder Pension

A Personal Pension which was introduced in 2001. Stakeholder pensions have to meet specific criteria set out by the Government.

Stamp duty

Tax levied by the Government applicable to all property transactions where the value of the transfer exceeds Ł125,000.

Stock Market

Place where stocks and shares are bought and sold.

Term Assurance

A Life Assurance Policy that provides cover for a set period of years.

Terminal Illness Benefit

Benefit that can be added to a Life Policy so that the benefit is paid on the diagnosis of a terminal illness rather than on death.

Unit Linked Endowment

A Life Policy where the investment element is placed into Investment Funds.

Unit Trust

An investment which allows people to pool their money enabling them to invest in a wide range of Investments and reduce the costs of investing.

Variable Rate

The term ‘variable rate’ means the standard interest rate charged by the lender that may be varied from time to time at the lender’s discretion.

Whole of Life Assurance

An Assurance policy that pays out on the death of the Life Assured.