Glossary

  • Accountable Institution

    Institution that is required to fulfill client identification, verification, record keeping and reporting obligations, under the Financial Intelligence Centre Act

  • Accrued Interest

    Interest that is earned but not paid, adding to the amount owed. On a mortgage, accrued interest is usually referred to as Negative Amortization

  • Adjustable Rate Mortgage (ARM)

    A mortgage on which the interest rate can be changed by the lender. In many countries, rate changes are made at the lender’s discretion (Discretionary ARMs), while in others, the rate changes are mechanical. Mechanical or Indexed ARMs are based on changes in the interest rate index over which the lender has no control

  • Affordable market

    This is the term used by the housing finance sector for consumers who can afford the repayments on housing units costing between R80 000 and R100 000. They are regarded as affordable by households earning just under R3500 – the maximum income limit for eligibility for the state housing subsidy. Loans for buying these units are offered by small banks and non-bank lenders, most of which access NHFC wholesale finance. This segment should also include households that can afford to buy housing units priced from R35 000 to R80 000. However, despite the activities of the NHFC, such units are generally not available

  • Agreement of Sale

    A contract signed by buyer and seller stating terms and conditions under which a property will be sold

  • Amortization

    The repayment of principal from scheduled mortgage payments that exceed the interest due. The scheduled payment is the payment the borrower obliged to make under the note

  • Angel Finance

    Loans from family and friends

  • Apex Lender

    Wholesale funder of retail lending institutions

  • Bridging finance

    A short term loan, usually from a bank, that “bridges” the period between the closing of a home purchase and the closing of a home sale

  • Building and housing standards

    State-defined guidelines for human settlement planning and design, as well as construction

  • Capital gains tax exemption

    Waiver by government of its tax claim on the appreciation in a single-family home when sold by the homeowner

  • Capital Requirement

    Statutory capital requirements banks are required to keep against the risk rated profile of their assets

  • Cash Lending

    Usually refers to 30-day lending by commercial shop-front micro lenders, in which a single payment is made at the end of the period

  • Cash Out

    A cash withdrawal – where the transaction is not associated with a purchase of goods with a debit card; or cash back–where cash is “purchased” along with other goods

  • Cash Reserve Requirement

    A prudential requirement that a specified percentage of banks’ liabilities (excluding capital and reserves) is held in cash (and liquid assets)

  • Cession

    Transferring rights to a claim

  • Collateral

    A borrower’s pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower’s default – that is, any borrower failing to pay the principal and interest under the terms of a loan obligation

  • Common Bond Organisation

    Membership based entities such as stokvels, housing savings clubs, credit unions (savings and credit cooperatives) and burial societies. A 1994 exemption to the Banks Act (No. 94 of 1990) allowed common bond organisations to take deposits under certain conditions

  • Community Bank

    Variously defined e.g. a bank that gets its deposits from friends, neighbours and customers and makes loans in the community; a bank, which is owned and managed by community members; in South Africa, a bank, whether co-operative, mutual or operating under the Village Bank or Stokvel exclusion relating to “common bond”. Ownership relates to the users and the supervision requirements are less onerous

  • Construction Finance

    The method of financing used when a borrower contracts to have a house built, as opposed to purchasing a completed house

  • Consumer Credit

    Credit for consumption

  • Credit Bubble

    When the rate of credit extension to a particular market exceeds the long run debt bearing capacity of that market, measured at the time the credit is granted

  • Credit Bureau

    An agency that compiles and distributes credit and personal information to creditors

  • Credit Gap

    Unavailability of loans of R10,000 — R100,000 in the housing finance arena

  • Credit Score

    A single numerical score, based on information in an individual’s credit report, that measure that individual’s creditworthiness

  • Cumulative Interest

    The sum of all interest payments to date or over the life of the loan

  • Customer Due Diligence (CDD)

    Know Your Customer (KYC) – identification of bank customers on the basis of reliable documentation to contain money laundering

  • Debt Consolidation

    Rolling short term debt into a home mortgage loan, either at the time of home purchase or later

  • Equity

    In connection with a home, the value of the home less the balance of outstanding mortgage loans on the home

  • Financial Systems Approach

    In the context of micro lending, integration of the financial system is pursued with poverty reduction as one outcome

  • Fixed Rate Mortgage

    A mortgage on which the interest rate and the monthly payment remain unchanged throughout the life of the mortgage

  • Group Loan

    Loan made to a group of people, for instance stokvel members

  • Housing authority

    A local public body, typically an arm of local government (such as a city, town, or county in rural areas), that owns and operates the low-end affordable housing

  • Housing finance agency

    A public body, typically an independent offshoot of the state government, which is in the business of financing long-term debt instruments to support construction, acquisition, renovation, and preservation of affordable housing

  • Housing Microfinance

    An encompassing financial service that allows poor and low income clients to finance their habitat needs through microfinance methodologies

  • Incremental Housing

    Formal freestanding units built under the Reconstruction & Development Programme and Site & Service housing, usually owner built, on a state subsidised serviced site

  • Installment sale

    A deferred ownership mechanism in which the purchaser pays installments towards the purchase price of a unit

  • Interest Cost

    A comprehensive and time-adjusted measure of loan cost to the borrower

  • Interest Rate Ceiling

    The highest interest rate possible under an ARM contract. It is also referred to as an ‘Interest Rate Cap’

  • Leases

    Agreements between an owner and a tenant for a fixed rent for a finite time (typically, one year) with neither party having any obligation to the other at lease-end

  • Lifeline Credit

    Credit that allows low-income borrowers to cope with unexpected or irregular expenses, from school uniforms to trips to the hospital

  • Loan administrators

    Service providers who assist lenders in administering loans. Loan administrators act as intermediaries between low-income clients and financiers

  • Low Income Market

    CAHF defines the “low-income” market as individuals falling into LSM (Living Standards Measure) categories 1-5

  • Millennium Development Goals

    At the United Nations Millennium Summit in September 2000 world leaders placed development at the heart of the global agenda, setting clear targets for reducing poverty, hunger, disease, illiteracy, environmental degradation, and discrimination against women by 2015

  • Mortgage Disclosure

    A requirement usually imposed by government, for lenders to disclose their lending practices. This is to ensure fair and good banking practice and to ensure that there is no discrimination in loan application

  • Mortgage Insurance

    insurance that protects the lender against loss on a mortgage on the event of borrower default

  • Offset Credit Right (OCR)

    A proposed derivative instrument based on a company’s ability to earn offset credits by purchasing from small & medium enterprises owned by historically disadvantaged individuals

  • Origination Fee

    An upfront fee charged by some lenders, expressed as a percent of the loan amount

  • Pension Backed Home Loan

    Loans made to fund housing, against the security of a retirement fund

  • Peoples housing

    Peoples housing is the process whereby individual households satisfy their own housing needs independently, sometimes with state financial support through the housing subsidy

  • Predatory lending

    A variety of unsavory lender practices designed to take advantage of unwary borrowers

  • Property management firms

    Private companies that specialize in managing apartment properties. Some specialize further specifically in affordable housing

  • Qualification Requirements

    Standards imposed by lenders as conditions for granting loans, including maximum ratios of housing expense and total expense to income, maximum loan amounts, maximum loan to value ratios, etc

  • RDP Housing

    A South Africa programme based on the housing policy derived from the Reconstruction and Development Programme by the 1994 South African government. RDP houses are subsidized houses provided to citizens earning below R3500 ($520)

  • Refinance

    Paying off an old loan while simultaneously taking a new one. Borrowers may refinance to reduce interest cost or to raise cash

  • REITs (real estate investment trusts)

    Publicly tradable (liquid) entities that own and operate income-producing real estate. The means by which direct ownership in real estate is made available to the general investing public

  • Repayment term

    The number of months allocated to pay off the loan

  • Second mortgage

    A loan with a second-priority claim against a property in the event that the borrower defaults

  • Secondary mortgage markets

    An established trading mart whereby existing mortgages are sold from one lender to another. Often they are pooled or securitized

  • Securitization

    Bundling and sale of asset-backed securities

  • Simple interest

    A transaction in which interest is not paid on interest – there is no compounding

  • Social housing

    An institutionalized form of housing tenure in terms of which forms of tenure other than normal ownership is provided, characterized by high quality subsidized housing focused on low income earners, and where there is a measure of tenant participation in the management of the institution

  • Solidarity Group Lending

    Peer group lending schemes. Members receive loans and then make regular weekly or monthly payments, with all group members providing a mutual guarantee of loan repayment. This method differs from rotating savings and credit associations in which group members make regular deposits and then take turns in receiving the total amount of the deposits

  • Stokvel

    Stokvels are community-based lending arrangements in South Africa. Generally a group of people get together and each contributes a specified amount per day or per week

  • Sub-prime borrowers

    A borrower who does not meet the underwriting requirements of mainstream lenders

  • Switching Cost

    Direct and indirect costs involved when a bank client switches his or her account from one bank to another

  • Tax liens

    A lien against title to a property placed by a locality for property taxes. If the property falls delinquent on its property taxes, the locality may take it by foreclosing on the tax lien

  • Underwriting

    The process of making a final determination on approval or rejection of a loan application

  • Use assessors

    Private agents who inspect borrowers’ property to confirm that the loan is used as reported in the loan agreement