Financial Terms and Glossary

For those of you who do not understand financial terms, MHL has provided you with a list of most important financial terms for you to understand. Students and applicators alike, these are financial terms which would be crucial to most of your home loan application needs.

For quick look-up of terms on your browser, open up this post on your browser first (click on the title of this post), then press CTRL F and type in the words you want to find.

Acceptance Letter

A letter from the application indicating his willingness to accept the loan after the loan is approved by the banking institution.

Application Form

A form used to apply mortgage and to provide information regarding a prospective mortgagor and the proposed security.

Appraisal / Valuation Report

A written analysis of the estimated value of real estate prepared by a licensed Appraiser.

Appreciation

An increase in the value of a property due to changes in market condition or other causes.


Asset

Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Average Rate
Average rate by loan tenure.

B Form
Tax form for business man / self-employed.

Balance Outstanding
The balance outstanding is the term used by the financial industry to describe the sum(s) that are still owed on a lending account or a product such as a loan, credit card or a mortgage.

Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balance Trasnfer
A balance transfer occurs when you move the balance from one financial institution to another.

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Base Lending Rate (BLR)
A minimum interest rate calculated by financial institutions based on a formula which takes into account the institutions’ cost of funds and other administrative costs.

BE Form

Tax form for those employed.

Beneficiary
A beneficiary is a person that is nominated to receive specific benefits/payments.
In financial terms, a beneficiary has the same basic definition in that it applies to somebody that will be legally entitled to receive something. So, for example, you can be the beneficiary of an insurance policy or the beneficiary of a trust. In either case, you will be the individual that is given the payment/benefits.

Booking Receipt
Official receipt from the Developer on the deposit payment made by purchasers.

Breach
A violation of any legal obligation.

Built Up Area
Size of the building.

CCRIS
Central Credit Reference Information System. A computerized database system developed and maintained by the Credit Bureau to collect, process, store and generate credit information.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Commitment Fee
A fee charged by the financial institution for setting aside funding that are not utilised by the borrower. Usually only applicable to overdraft facility.

Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Convetional Package
Normal term loan package.

Creditor
In financial terms a creditor is a company or individual to whom you owe money. So, for example, if you have a mortgage then your mortgage provider is your creditor in this instance. In financial terminology you, in this kind of relationship, will be described as the debtor with regard to the money you owe.

Current Account
Is a form of deposit account that offering various flexible payment methods to allow customers to distribute money directly to others and usually comes with cheque book that offer the facility to arrange standing infrastructure and direct debits.

Daily Rest
Allow clients to make prepayment and withdraw from prepayment, the interest calculation is daily basic.

Debt
An amount owed to another.

Default
Failure to pay the monthly instalment/interest payments to financial institutions when due.

Default Charges
Charges where late payment after 7 days, overdue 60 days, over 6 months. The detailed information will be stated in Letter Offer.

Deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Depreciation
A decline in the value of property; the opposite of appreciation.

Developer
Construction copmany who handles the project.

Disbursement Fees
Various type of fees such as registration of charge fee, land search fee, bankruptcy search fee incurred by financial institutions and solicitors attending to the loan documentation in relation to the loan which are payable by the borrower.

Documentation
A set of agreements, forms, and other documents to be signed in connection with a loan. The documentation will form a full set of records for the loan.

Down Payment
Money that borrowers need to pay at the closing of the loan. The down payment is the difference between the homes value and the loan amount. Paying a higher down payment will result in a smaller loan amount and smaller monthly payments.

Draw Down
Money disbursed from bank to vendor, normally will takes 3 months from loan documents signed.

Employed
Person who works under a company, has salary proof statement.

EPF Statement
Employee’s Provident Fund. Evidence of income.

Equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Financial Institutions
All commercial banks and finance companies licensed under BAFIA 1989 and Islamic banks licensed under the Islamic Banking Act 1983.

Fixed Rate
Interest rate that is fixed and not pegged against BLR.

Flexi Loan
Loan package with the flexibility to cash out money, prepayment, and redraw from prepaid amount. Terms applied.

Floating Rate
Interest rate that is pegged to the BLR therefore it changes whenever the BLR fluctuates.

Foreclosure

Legal action available to the financial institution for recovering outstanding sums owed by a borrower who has defaulted on his/her loan. The property pledged by the borrower to secure the loan is sold and the proceeds of the sale used to settle the outstanding loan amount.

Freehold
Owner have unlimited right to subdivide and aggregate subject to town planning controls.

Full Settlement
Pay off the loan amount to bank.

Graduated Payment

A scheme that allows the borrower the flexibility to pay a lower instalment sum at the beginning of the loan tenure before progressing onto a higher instalment sum as the borrower’s purchasing power improves.

Gross Monthly Household Income

The sum of gross monthly pay of all working family members before deducting income tax, Socso, EPF, loan instalment or other deductions plus any additional income from overtime, commissions and other sources.

Guarantor

Person or entity who is legally bound to pay a debt incurred by the borrower if that borrower fails to pay.


High Flexi Loan
Comes attached with a current account, flexible to cash out money, prepayment, and redraw rom prepaid amount any time.

Homeowners Insurance
An insurance policy that combines liability coverage for a homeowner together with protection from damages caused by wind, fire, vandalism and other risks.

Hybrid Loan
Fixed rate for few years and revert to floating rate subsequently.

Installment
Amount to be repaid monthly.

Insurance
Policy that gives protection for the person and the property.

Interest Rate
The amount charged by the lender to the borrower for borrowing a sum of money expressed as percentage of sum borrowed.

Joint Borrower
Another borrower applied together the loan.

Land Area
Size of the land.

Land Search Fees
Fees payble to bank in which the bank will do a research on the property land to check whether have any caveat area.

Land Title
Title of the land describes details of the land location, size, title status and extra.

Land Property
Property with the individual land title, ie:terrace house, bungalow, townhouse and extra.

Late Charge
A penalty charged by financial institution for not paying instalment due on time.

Leasehold
Lease transfers require State or its equivalent’s approval. Lease duration usually 30, 60, 99 or 999 years. Limited by purpose of lease and land legislation, and also environmental and town planning controls.

Legal Fees
The fees and charges or price to be paid for legal assistance provided by a lawyer. This includes fees charged for time spent on a legal matter.

Lender
The bank, mortgage company, or mortgage broker offering the loan.

Letter of Administration
A Grant of representation issued by the High Court to a person to allow him to administer the estate of the deceased who died without a will.

Letter Of Offer
Letter issued by bank for borrower, will clearly stated the interest rate, loan tenure, term and condition about the loan. Borrower needs to initial every page to confirm he/she understands conditions inside before signing this Letter of Offer.

Letter Of Purchase
Formal letter which acceptable for loan application of banks in same details of booking receipt, with the signature of seller and purchaser.

Letter Of Understanding
Letter which clearly stated that borrowers hereby undertaking to refund all monies disbursed to the vendor/developer by your Bank in favour of the Purchasers/Borrowers cannot be registered resulting the Memorandum of Charge in your favour cannot be registered for whats ever reason.

Loan
Amount from banks for property / car purchase or personal / study purpose.

Loan Tenure
Number of years taken to fully repay the loan principal and interest as agreed under a specific repayment programme.

Lock In Period
The period after loan is taken and the borrower is not allowed to make full settlement within the lock in period, panalty will be incurred.

Lump Sum
A single payment of benefits, with no further payments due.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Master Title
Title for a land.

MLTA
Mortgage Level Term Assurance.

Margin of Finance
The margin of the loan for the borrower.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Reducing Term Assurance (MRTA)
A term insurance which reduces over the tenure of the loan. This form of insurance is used to provide cover for the outstanding loan amount, in the event of death or total permanent disability of the insured. MRTA is normally calculated to meet the outstanding loan amount.

Mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

Mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.

Moving Cost
Processing fees for the loan application, ie: stamping fees, legal fees, disbursement fees and valuation fees.

Monthly Rest
Interest is calculated based on balance at the end of each month and does not take into account the daily balance of the account.

Outstanding Loan
Remaining loan not yet paid, including interest and other charges.

Overdraft
Advances given to borrower to overdraw on his curren account. Interest is calculated based on daily end of the day debit balances in the account.

Overnight Policy Rate (OPR)
The OPR will have a dual role as a signalling device to indicate the monetary policy stance and as a target rate for the day-to-day liquidity operations of the Central Bank. Any change in the monetary policy stance would be signalled by a change in the OPR. It will serve as the primary reference rate in determining other market rates. To reflect the unchanged stance of monetary policy, the OPR will be set at the current interbank overnight rate.

Payment To Income Ratio (PTI)
Ratio for the borrower can afford according to his income and commitment.

Payslip
Proof documents from employer to employee which states the basic income and others, i.e. allowance and commission.

Power of Attorney
A formal legal document giving authority to one person to act on behalf of another person.

Premium
Amount to pay.

Prepayment
Payment of all or part of a loan before maturity.

Prepayment Penalty
A fee charged by financial institutions for early payment of loan in full. The fee charged is usually based on a percentage of the loan amount or X months of interest.

Principal
Amount of debt, not including interest. The face value of a note or mortgage.

Property
Refers to landed properties (like house, apartment, condominium) and land (like bungalow lots).

Rate
Amount of debt, not including interest. The face value of a note or mortgage.

Redemption
Full repayment of all outstanding balance in the home loan.

Redraw
Withdraw from the prepaid amount.

Refinancing
The process of paying off a portion or the entire amount of the existing loan with the intention of obtaining another loan from the same or another financial institution.

Sale & Purchase Agreement (S&P)
A written contract signed between the buyer and seller stating amongst others, the terms and conditions under which a property will be sold.

Security
Real or personal property that guarantees the repayment of a loan. The borrower risks losing the property if the loan is not repaid.

Solicitors Fees
Lawyer Fees.

Stamping Fees
All transfers of property attract stamp duty regardless whether the acquirer gives consideration for the transfer or not. Usually, acquirers of property pay money for the acquisition. But sometimes the acquisition may be way of gift. A charge on property is an instrument created by statue, namely the NLC. It affords the Chargee a security for loan granted to the Chargor over the property charged. Stamp duty is calculated at the rate of about 0.5% of the loan amount.

Strata Title
Same meaning with individual title, but use for non-landed like condominium/apartment.

Subsale
Purchase from existing Owner, not from Developer.

Tax Receipt
If the person’s income reached a target level, he/she is compulsory to pay tax. Tax receipt will be given as payment made.

Total Payment
Total amount payable by borrower includes the principal and interest for whole loan tenure.

Term
The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years.

Term Loan
Traditional/Conventional Basic Home Loan.

Under Construction
Incomplete property/still under construction.

Variation
The term and condition of letter offer will be subjected to the guidelines issued from time to time by Bank Negara or any other authority having jurisdiction over the bank and to the bank’s periodical review and variation for time to time at the bank’s sole and absolute discretion.

Valuation
Valuation is a term that is often used within the property sector. In this instance, it is used to describe the process that assesses the actual value of a given property before a mortgage is approved to buy it. The majority of lenders will ask that you pay for a valuation before they approve your loan. This valuation will simply confirm to the lender that the property value is right and will also give them specific information about the local area and general state of the property. This kind of valuation is not a full survey. It is basically undertaken to help the lender minimise their lending risk.

Valuation Fees
Fees payable for market value indication.

Withdrawal
Credit facilities which allows take out money from the loan amount. Normally will <70% of loan amount.

Waive
Adjustable. Some bank allows borrower to waive the legal fees into loan amount.

Zero Moving Cost
Banks will absorb all the processing fees.

Zero Lock In
No lock in period, the borrower can sell off or make full settlement at any time.

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