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Financial Jargon Explained

Jan 18, 2016

There is an array of abbreviations surrounding your savings and mortgage products but do you understand it all? If you don’t know your APR from your AER we’ve broken down and explained some of the most popular abbreviations and financial jargon used today.

Savings Jargon:
AER – Annual Equivalent Rate – This is the annual rate of interest, taking into account how often the interest is added to your account.
Capital – This is the overall amount of money you have invested.
FRB - Fixed rate bond - This is a lump sum of money invested for a specific length of time at a set interest rate.
Gross rate - This explains the interest paid without income tax being deducted.
ISA – Individual Savings Account –This is a tax-free way of saving or investing money. There are annual limits regarding how much you can save each year.
Interest - This is what banks and building societies pay you if you keep your money with them. Interest rates can go up and down.
Penalty - Penalties can be incurred if you break the conditions of the account, such as not giving sufficient notice for withdrawals
Net rate – This defines the interest rate payable after any income tax is deducted (if you pay tax).
Variable rate - Most savings accounts pay a variable rate of interest, which means that the rate of interest changes from time to time.

Mortgage Jargon:
Arrangement Fee – A fee sometimes charged by your mortgage provider for arranging your mortgage loan
APR – Annual Percentage Rate - This figure shows the total amount of interest you will have to pay over the course of a loan/mortgage (including all costs and charges). It is broken down into rate per year.
Conveyancing - When you are buying or selling a property, the paperwork required to transfer the property title from the seller to the buyer is called Conveyancing.
DIP – Decision in Principal – This is a process whereby acceptance of the mortgage application is approved subject to lender checks.  It will tell buyers roughly how much he/she is able to borrow.
ERC - Early Repayment Charge - If you repay your mortgage early, or make an overpayment of more than your overpayment allowance, an early repayment charge may be payable.
Exchange of contracts – Once the seller and buyer exchange contracts, the deal becomes legally binding.
Freehold – A freehold tenure means that you own not only the property, but the land on which it stands.
Help to Buy – A government equity loan scheme designed to make more affordable homes available to all buyers.
KFI - Key Facts Illustration - This sets out details of the mortgage product that a customer is interested in. All mortgage lenders are required to set out the details in a Key Facts Illustration in the same format.
Leasehold – As a leaseholder, you own the property but not the land on which it stands. You should find out how long is left on the lease before purchasing.
LTV - Loan to Value - This is expressed as a percentage and describes how much of the purchase price or valuation the Society will lend you. For example, if a property is valued at £100,000 and you have a £80,000 loan, the LTV is 80%.
Shared Ownership – Shared Ownership is an affordable home-ownership scheme provided through housing associations.

General Terms:
AGM – Annual General Meeting – Building Societies, and other charities and companies hold an AGM each year to elect a board of directors and inform members of previous and future activities.
BACS - The Bankers Automated Clearing Service - This is a free service for making direct payments to bank accounts.
FCA - Financial Conduct Authority - Formed as one of the successors to the Financial Services Authority (FSA). The FCA regulates the financial services industry in the UK.
IFA  - Independent Financial Advisor - A person who gives independent, unbiased and unrestricted advice on retail investment products, acting in the best interest of the client.
P.A. – Per Annum – this is referring to something taking place every year. E.g. interest is paid p.a. (annually).
PRA - Prudential Regulation Authority - The PRA works alongside the Financial Conduct Authority (FCA) creating a “twin peaks” regulatory structure in the UK.