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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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