A to Z of mortgages

A to Z of Mortgages

A comprehensive A to Z for mortgages and mortgage terminology.

Remember, if you would like help or advice on the best mortgage solution of you, don’t hesitate to get in touch.

A

Agreement in Principle (AIP)
A lender document confirming the amount you will be able to borrow to purchase a residential property or BTL subject to satisfactory underwriting and valuation.

Annual Percentage Rate (APR)
The overall cost of a mortgage for the full term, including the interest and fees. This helps you to compare various mortgage deals and the overall cost.

Arrangement Fee
Is a fee charged by the mortgage lender to set-up a mortgage and can normally be added to the loan.

Arrears
This means you missed a mortgage payment and you go into arrears once you fall one month behind on repayments of your mortgage. If this happens contact your lender or mortgage broker as soon as possible.

Additional Borrowing
If you have a mortgage with a lender and want to borrow more it is referred to as additional borrowing.

Advance
The mortgage loan.

B

Base Rate
Is a rate of interest set by the Bank of England and can go up and down in line with the Bank of England’s Monetary Policy Committee recommendations.  Most standard variable rate and tracker mortgages follow the base rate.

Booking Fee
A fee charged by some lenders at the point of application or a mortgage offer being issued.

Buildings Insurance
Is required by a lender when you take out a mortgage.  The insurance covers you for damage to the structure of your home.

Buy To Let
A Buy to Let property is a residential property that is rented by the owner (landlord) to a tenant.

Building Survey
A building survey is a report on the properties condition along with estimated value.

C

Capital
This is the amount of money you borrow to buy a property.

Capped Rate
When an interest rate is caped, the interest rate charged by your lender will never exceed the upper ‘capped’ limit, regardless of increases to the Bank of England base rate.

Cashback Mortgage
On completion of your mortgage the lender will give you cashback with the amount varying from £150 to £500.

County Court Judgement (CCJ)
A CCJ is issued if you fail to make payment of a debt. This could make it harder for you to obtain a mortgage or restrict the number of lenders that you can approach.

Conveyancing
Normally completed by a solicitor or licensed conveyancer this is the legal process that must be completed prior to buying or selling a property.

Calculators
Our mortgage calculators can help you work out how much you can borrow, how rate changes will effect your repayments and mortgage repayments. Mortgage Calculators

Completion Date
The day on which a property legally becomes yours.

Contents Insurance
Is an insurance policy to insure household contents against theft and damage. Building & Contents Insurance.

Conveyancer
Normally a solicitor or a licensed conveyancer and they will look after your interest when buying and selling a property along with explaining paperwork and completing all necessary paperwork and documents.

Credit scoring
Used by lenders to help them reach a decision on whether or not to lend you money for a mortgage or other financial product.

D

Deposit
This is the amount of money you need to contribute towards the purchase of a property. Normally the minimum is 5% but can be higher dependent on the lender and the mortgage deals available.

Discounted Rate Mortgage
This is where the interest rate you are charged is a set amount less than your mortgage lender’s standard variable rate (SVR). For example, if the lender has an SVR of 4.5% and the discount is 1%, you will pay 3.5%. Mortgage Types Explained.

Daily Interest
Payments you make will reduce the balance and therefore the amount of interest you are charged, from the day the lender receives payment.

Disbursements
These are the fees payable to other people and bodies and are itemised on your conveyancers invoice for the completion of your home buying legal work.

Discharge Fee
A nominal fee paid to the lender to release their hold over the property when re-mortgaging or when the mortgage is paid in full.

E

Early Repayment Charges (ERCs)
A penalty fee you must pay if you leave your mortgage during a specified period. This is normally if you have a fixed rate deal for a set period or other similar offer or incentive.

Endowment Mortgage
A type of mortgage where you only pay interest and also pay money into an investment called an endowment that should enable you to pay off the mortgage at the end of the term.

Equity
This is the amount of the property that you own. Normally your deposit plus the capital you’ve paid off and increases/decreases in value.

Equity Release Scheme
Allows older homeowners normally 55 upwards to release the cash tied up in their property. There are two types of equity release, lifetime mortgages and home-reversion schemes.

Energy Efficiency Report
Must be provided by the sellers of properties in England and Wales.

Exchange of Contracts
The swapping of signed contracts between a buyer’s conveyancer and a seller’s conveyancer. Once you have exchanged contracts you are both legally bound to the transaction.

F

Financial Conduct Authority (FCA)
Only ever take mortgage advice from an FCA authorised and regulated firm.  The FCA regulates the UK financial services industry with the aim that customers a treated fairly at all times.

Fixed Rate Mortgage
For a set period of time your interest rate is fixed at a certain level following which it normally reverts to the lenders standard variable rate. Which is normally higher than the fixed rate. Mortgage Types Explained.

First Time Buyer
A person who is purchasing a property for the first time. Buying Your First Home.

Freehold
Properties are either freehold or leasehold. If it’s freehold this means you own the property and the land it’s built on.

Flexible Mortgage
With a flexible mortgage you can make overpayments, underpayments and in some cases take mortgage holiday payments. The flexibility can help you pay off your mortgage early and save money on interest if you make regular overpayments.

G

Gazumping
When the seller of a property accepts an offer on their property but a different buyer then makes another offer that is higher, which the seller accepts.

Guarantor
Most common if the buyer has adverse credit or is a first time buyer.  The Guarantor is a third party who agrees to make the mortgage payments if the home owner can’t make the payments.

Government Land Tax
A tax charged on land and property transactions in the UK and varies dependent on the property and land transaction value. Also known in England as Stamp Duty. Stamp Duty Guide.

H

Help to Buy
The Government has launched a number of schemes to enable the purchase of residential property. These schemes known as Help to Buy include equity loans, mortgage guarantees, ISAS and other specific schemes in Scotland and Wales.

Higher Lending Carge (HLC)
Sometimes charged by the lender if you are borrowing more than 75% of the property value.

Household Insurance
Also called Home Insurance is a way of referring to buildings insurance and contents insurance.

I

Interest Only Mortgage
Only available to High Net Worth Individuals (HNWI); BTL Landlords; or individuals that can demonstrate ability and means to repay mortgage at the end of its term.

Intermediary
A qualified individual, normally a Mortgage Advisor or Financial Advisor who provides advice on mortgage options and manages the process from start to finish.

Illustration
The Mortgage Illustration sets out the terms of the mortgage product and the total cost of the loan.

J

Joint Mortgage
Is a mortgage taken out by between two people normally partners or up to a maximum of four applicants.

K

Key Facts Illustration
A document that details all information about your mortgage including term, rates, fees, penalties, etc.

L

Land Registry Fees
Paid by the borrower normally via the Conveyancer and is a charge for completing all Land Registry Searches and registering the property with the new owner and lender.

Leasehold
Properties are leasehold or freehold and in the case of leasehold you only own a temporary right to the property and the land it’s built on. Leases vary in length and some lenders won’t lend on leasehold properties. Normally you will pay an annual charge known as ground rent for the lease.

Life Assurance
A type of insurance that normally runs parallel with a repayment mortgage and will ensure the mortgage is repaid if the owner of the policy dies before the end of the mortgage term. Life Insurance.

Loan To Value (LTV)
The amount of the mortgage as a percentage of the property value. For example, a £90,000 mortgage on a house valued at £100,000 would mean a LTV of 90%.

Local Authority Search Fees
Your conveyancer will ask questions about the property you are buying and the local authority will charge for answering these questions.

Land Registry
Maintain details of properties and ownership.

Lifetime Mortgages
Also known as equity release schemes. Allowing older homeowners to release a percentage of equity from their property.

M

Monthly Repayment
Normally the interest and capital that you pay monthly to your mortgage lender.

Mortgage Agreement in Principle (AIP)
See ‘agreement in principle’.

Mortgage Deed
The contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender has if the borrower fails to make a repayment.

Mortgage Payment Protection Insurance (MPPI)
Also known as ASU Insurance this type of insurance policy covers your mortgage, usually for a year, if you are unable to work due to accident, sickness or unemployment.

Mortgage Term
The length of time that you are taking out your mortgage, for example 25 years.

Mortgage
A mortgage is secured against a property and is something that you give the lender in exchange for the loan they make that allows you to purchase the property. The mortgage is secured against the property and is visible to anybody who completes Land Registry Searches.

Mortgage Account Fee
A fee that is charged by the lender for setting up, maintenance and closing down of the mortgage account.

Mortgage deed
A legal document establishing a mortgage on a property.

Mortgage Offer
This is issued once the lender has completed all necessary underwriting and valuation of the property being purchased. It sets out the terms of the mortgage loan.

Mortgage Holiday
A period of time when you don’t make repayment of your mortgage.  This has to be agreed with the lender and the non-payments are normally added to the end of the mortgage term or monthly repayments are increased. Taking mortgage holidays could have a negative impact on your credit rating.

N

Negative Equity
When the value of your home falls to a level that is below the amount remaining on your mortgage.

O

Offset Mortgage
An Offset mortgage allows you link your current and savings accounts to your mortgage. The lender will then offset the total balances of your linked accounts against the amount you owe on the mortgage each month. And then work out your mortgage interest on the lowered balance. You won’t earn interest on the current and savings accounts while they’re linked to the mortgage.

P

Product Fee
This is charged on some mortgages as part of the deal it might be a flat fee or a percentage of the loan and is normally added to the loan amount.

Product Transfer
Some lenders will allow you to transfer a mortgage to a new mortgage product with the same lender at the end of your current deal.

Portable Mortgage
Is a mortgage that can be moved from one property to another should you move subject to underwriting criteria.

Q

Quantitive Easing
Is used by the Bank of England to inject money into the economy.

R

Rebuild Cost
Required by insurance companies and is the cost of rebuilding your property if it is destroyed.

Remortgage
This is when you change mortgage or mortgage provider without moving house. Re-mortgaging often occurs when the current mortgage deal ends or if additional borrowing is required for home improvements or debt consolidation. A Guide To Remortgaging.

Repayment Mortgage
This is when you pay the interest and capital on a mortgage  loan.

Right To Buy
This enable Council House and Housing Association tenants to purchase the property in which they live at a discounted price.

Retention
When a property valuation is complete it might be identified that repairs of improvements are required to the property. In this case the mortgage lender might hold back a percentage of the mortgage until these repairs are satisfactorily completed.

S

Shared Ownership
You buy a share of the property from your Housing Association or a Housing Association.  This share is normally between 25% and 75% which is mortgaged  and you then pay and pay rent on the remaining share, owned by the housing association.

Stamp Duty
Stamp duty land tax (SDLT) is payable when you buy a property for more than £125,000 or £40,000 if it’s a buy-to-let property or second home. Stamp Duty Guide.

Standard Variable Rate (SVR)
The default mortgage interest rate that your lender will charge after your initial mortgage deal period ends. This could be higher or lower than your original rate.

Sub-Prime/Non-Conforming Mortgage
For individuals who don’t qualify for normal prime mortgages due to bad credit or difficulty proving income.

Sub-Accounts
A mortgage might be made up of different products with differing interest rates and terms. If this is the case the mortgage will be slit into multiple parts called sub-accounts.

T

Tie-In Period
This is the period during which you are ‘locked in’ to your mortgage deal. You’ll have to pay an early repayment charge if you leave your mortgage during this period.

Tracker Mortgage
The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it.

U

Underpayment
A reduction in mortgage repayments that is agreed with your lender.

V

Valuation Survey
A valuation survey is completed to check whether the property is worth the value being paid.

Variable Rate Mortgage
The interest rate on your mortgage can go up or down according to your lender’s standard variable rate.

W

Whole of Life Policy
This is a life insurance policy that pays out when you die.

X

X Marks The Spot Where You Sign
We really struggled with an ‘X’ for our A to Z so decided that the ‘x’ should refer to the many documents that you will have to sign during the mortgage application process.

Y

Yield
The rental income from a property calculated as a percentage of its value.

Z

Zero Interest Rate
Interest rates are set by the Bank of England and can go up and down but could be set at zero if required for economic reasons. Mortgage rates won’t be set at Zero but at a percentage above this rate.

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