Impaired credit, also known as adverse credit, occurs when you do not keep up to date with payments on any credit cards or loans. It is most likely the result of an uncontrollable change in financial circumstances, such as job loss, continued illness, or a decline in asset prices.
Impaired credit is a bad signifier, usually pointing towards an individual’s lower credit score or an entity’s reduced credit rating. Due to this, a person with impaired credit can possibly be seen as high risk by a lender. This might lead to less accessibility to credit facilities and having to pay a higher rate of interest on any loans.
Insurance (buildings insurance)
An insurance policy helps to protect you against risks and accidents. Thus, buildings insurance covers the cost of repairing damage to the structure of your property. This protects you in the unfortunate event of a fire, natural disaster, vandalism, or something as unpredictable as a fallen tree or lamp post.
If you are buying a house, your lender may require you to purchase buildings insurance in order to get the mortgage. Buildings insurance is also popular for landlords who rent out a property that they own. If you are a tenant, you do not need buildings insurance, however, you may like to consider taking out a contents insurance policy.
An interest rate is applied to any savings or loans. For savers, an interest rate is how much you earn on your money. In effect, it is the annual rate that your bank or building society will pay you for borrowing your money. Conversely, the interest rate on a loan is the cost of borrowing money from the lender, often shown as an annual percentage of the loan. This means that you will pay back the capital, which is the original amount of the loan, plus the interest.
The base rate, or bank rate, is set by the Bank of England for the UK. It is typical that when this base rate goes up, so will the interest rate that you repay on your loan or earn on your savings.
There are two different types of mortgage: a repayment mortgage and an interest-only mortgage. An interest-only mortgage lets you only pay off the interest on your loan each month, leaving the capital to be paid in full at the end of the mortgage term. This means that, although monthly repayments will be lower, the repayments will not reduce your debt. In other words, the size of your debt stays the same throughout the mortgage term.
An increasing number of lenders are beginning to offer interest-only mortgages which are aimed at those in or nearing retirement. You may see these referred to as retirement interest-only mortgages or RIOs.
An ISA is an individual savings account. Therefore, an ISA mortgage is essentially an interest-only mortgage with the additional investment of an ISA. The borrower only repays the interest on the loan to the lender, putting regular payments into the ISA also. When the ISA matures, it is used to repay the capital. ISA funds are tax-free, which means that ISA mortgages can be particularly advantageous for those who pay a higher rate of tax. Depending on how well the ISA performs, you may not only be able to pay off your mortgage at the end of the term, but also get an additional lump sum, or even be able to pay off the mortgage early.