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Glossary of Financial Terms

Arrears

A debt which you have failed to pay. If you have missed 3 months of mortgage payments, you will be ‘in 3 months of arrears’.

Asset

An asset is any property, vehicle, machinery, furniture, or anything owned by an individual or business that has monetary value.

Assured Shorthold Tenancy (AST)

A landlord is required to give their tenants an assured shorthold tenancy contract to sign. This states how much rent needs to be paid, who is responsible for repairs and how long the tenancy will last.

Capital

This is the original loan amount, before any interest or fees are applied.

Capped Rate

This is a deal offered by lenders allowing you to ‘cap’ the interest rates on your loan. This gives you certainty that you will never have to pay more than what you can afford. However, it is generally a lot higher than other rates.

Cash Reserve Facility

Pre-arranged loan amount which you can choose to take money from as and when you need it.

County Court Judgement (CCJ)

This is a type of court order that is filed against you if you fail to pay a debt. You will normally have 30 days to pay the money back, and if you don’t, it will be added to your credit report which will remain there for 6 years. This could significantly damage your credit record and affect you from borrowing money in the future.

Desktop Valuation

This is a type of valuation done of a property by using publicly available information. They will use things like the postcode, tax records, number of bedrooms and facility rooms, and the local area to determine the value- assuming it is in an average condition.

Discounted Rate

This is a deal offered by lenders, giving you a discount on the interest rates you are paying on your loan. This deal normally lasts around 2-5 years.

Drive-by Valuation

This is when the surveyor will value the property just from the exterior- they won’t go inside.

Early Repayment Charge

This is a financial penalty when you choose to pay back a loan earlier than the agreed term with the lender- this may be because you have inherited some money or sold a property. The lender will charge this based on one of these four ways:

A percentage of the original loan amount.
A percentage of the balance that you still owe on the mortgage.
A percentage of the loan amount that you have already repaid.
A certain number of months’ interest.

Equity

The value of the proportion of the property you own out right- unmortgaged. If you owned a £200,000 property and you put in £20,000 of your own money and had a £180,000 mortgage, you would have £20,000 in equity.

Fixed Rate

This is a deal offered by lenders at the beginning of a mortgage term, normally lasting 2-5 years. This ensures that the interest rate you are paying on your loan will stay the same every month, making the monthly payments the same.

Further Advance

This is when you borrow more money from your current mortgage lender. This is normally a different rate to your main mortgage.

Inheritance Tax

A 40% tax charged by the government on the estate of someone when they have passed away. This is charged on anything over the value of £325,000 For example, if your estate was worth £500,000, you would be charged 40% on £175,000.

Interest

A percentage rate charged by a lender based on the amount of money borrowed and the length of time it is borrowed for. It builds on a monthly or annual basis.

Interest-Only

When you take out a loan, most of time, you will be paying the money back monthly, Interest-only is when you only pay back the interest of the loan each month, and nothing off the original loan amount.

Loan to Value (LTV)

Loan to Value is an expression used by lenders to determine the value of a loan in comparison to the amount the property is worth (in cases where the loan is secured against a property). For example, if your property was worth £200,000 and you applied for a loan worth £100,000- the loan would be 50% LTV.

Rolling Interest

This type of interest is not paid monthly, it is added on to the total loan amount each month. Then, the next month, you are paying interest on the initial loan amount and the interest already accumulated. This is then all paid back together at the end of the loan term.

Second Charge

A second charge loan is a loan that is put ‘behind’ another one. For example, a secured loan would be second charge to a mortgage- so, if the property was sold, the mortgage lender would be re-payed first and the secured loan lender, second.

Standard Variable Rate (SVR)

All lenders have a standard ‘default’ interest rate that they charge on loans, normally influenced from The Bank of England’s base rate. This rate is different for all lenders and it can move up and down throughout the loan term without warning.

Unsecured Loan

This is normally a personal loan from a bank where you have agreed monthly repayments. The rates tend to be much higher as the loan isn’t secured against anything that the lender could seize if the repayments weren’t made.

Valuation

The estimation of the property’s value- carried out by a professional valuator sent from the lender before offering a loan amount.

See also Frequently Asked Questions