Mortgage Jargon Buster

Mortgage terms explained in plain English

Agreement in principle (AIP)

confirmation from a mortgage lender confirming they might be willing to lend, often involving a credit search.

 

APRC

Annual percentage rate of charge: the overall cost of a mortgage, including the interest and fees. It assumes you will have the mortgage for the whole term, so may not be a useful way to compare deals.

 

Arrangement fee

A fee for setting up your mortgage. Many mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the whole mortgage term.

 

Arrears

To miss mortgage payments or to have ‘defaulted’ at least once on your mortgage repayments.

Base rate

A rate of interest set by the Bank of England, which tracker mortgages usually follow.

 

Booking fee

A type of mortgage set-up fee, charged by the lender.

 

Broker

An adviser who can help you arrange a mortgage.

 

Buildings insurance

Insurance that covers you for damage to the structure of your property.

 

Buy-to-let

A buy-to-let property is bought with the sole intention of letting it to tenants.

Capital

The amount of money you borrow to buy a property.

 

Capped rate

A mortgage deal where the interest rate will never exceed the upper ‘capped’ limit, regardless of increases to the Bank of England base rate.

 

Cashback mortgage

A mortgage where the lender gives an amount of cash, to the borrower, on completion.

 

CCJ

County Court Judgement issued for non-payment of debt, which will have a detrimental impact on an individual’s credit rating.

 

Collar

Often linked with a cap, a Collar will prevent the interest rate from falling any lower than the specified amount.

Complete chain

A ‘chain’ of property sales and purchases is considered to be complete when all parties have agreed their relevant sales and purchases. Timescales, to complete a chain, can vary significantly and individuals should be cautioned to not proceed with applications and payment of fees before a chain is complete

 

Conveyancing

The legal process of buying or selling property. This can be done by a solicitor or licensed conveyancer.

 

Current account mortgage (Cam)

Your mortgage, credit card and loan debts and your current and savings account balances are combined into one account. Your credit balances offset your debts, so you only pay interest on the difference. These are usually more expensive than conventional mortgages.

Deposit

An amount of money put down, by a buyer, towards the cost of a property.

 

Discounted-rate mortgage

Mortgage deal where the interest rate charged is a set amount less than the mortgage lender’s standard variable rate (SVR)

Early repayment charge (ERC)

Penalty fee paid for redeeming a mortgage during a specified period.

 

Endowment

A repayment vehicle used to repay an interest only mortgage.

 

Equity

The difference between the amount of outstanding mortgage and total value of the property.

 

Equity release scheme

Allows older homeowners to release cash, from the equity within the property. The two types, lifetime mortgages and home-reversion schemes, work in different ways.

Family offset mortgage

Family members (usually parents) deposit savings with the mortgage lender to help first-time buyers get onto the property ladder. Savings are balanced against the borrower’s debt, so the amount they owe and pay in interest is reduced.

 

Fixed-rate mortgage

The mortgage interest rate is set for a defined period. Giving the borrower the security of knowing exact mortgage payment each month..

 

Flexible mortgage

Allows the borrower to overpay, underpay or even take a payment holiday, from mortgage payments. Giving a large degree of flexibility, which usually means they are more expensive than conventional deals.

 

Freehold

A property that is owned in its entirety. i.e. The building and the land it stands on.

Gazumping

When an offer has been accepted on a property but a different buyer then makes a higher offer, which the seller accepts.

 

Guarantor

A third party who commits, legally, to meet the monthly mortgage repayments if the borrower is unable to.

 

Help to Buy

Government initiatives including equity loans, Isas and specific schemes for Scotland and Wales. They all aim to make home-buying easier.

 

Help To Buy Isa

A tax-free savings account with cash bonuses, funded by the government, to encourage first time buyers to save for a deposit and purchase a property.

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Interest-only mortgage

A mortgage which is arranged so that the borrower only has to pay the interest on the mortgage each month. Monthly payments are cheaper but none of the capital will be repaid. A repayment plan or strategy must be in place – Examples include; investing in stocks and shares, pension, endowment or the sale of another property.

 

Intermediary

An adviser who can source and help arrange a mortgage.

 

 Joint mortgage

A mortgage taken out by two or more people.

 

Land Registry

Official register of property ownership details.

Leasehold

Property ownership, where the land remains in the ownership of another party. Often the case for flats or apartments, each flat owner owns their portion of the building but for a specific period, the Lease period. The outstanding lease period can affect mortgagability.

 

Lifetime mortgages

See ‘equity release schemes’.

 

Loan-to-value (LTV)

The mortgage size expressed as a percentage of the property value.

 

Market Appraisal

This is an estimate of the saleability of a property, provided by an estate agent. This is not a true valuation, which can only be provided by a member of the Royal institute of chartered surveyors. Market appraisals are guide to what price a property might sell for and how the property should be marketed to best meet the owners needs.

 

Monthly repayment

The amount paid to the mortgage lender each month.

 

Mortgage agreement in principle (AIP)

See ‘agreement in principle’.

Mortgage adviser/advisor

A qualified professional, registered with the Financial Conduct Authority, who is able to provide mortgage recommendations based on each clients personal and financial circumstances.

 

Mortgage deed

Contract between borrower and lender, detailing the legal obligations of the borrower and rights of the lender.

 

Mortgage payment protection insurance (MPPI)/ASU

Insurance that pays a monthly benefit, if the policy holder is unable to work due to accident, sickness or unemployment.

 

Mortgage term

The amount of time the mortgage is taken out for. Usually between 5 and 40 years.

 

Negative equity

When the value of a property falls below the amount remaining on the mortgage.

Offset mortgage

An offset mortgage links a mortgage with savings and, sometimes, a current account. The credit balance is offset against the mortgage debt so that interest is only paid on the difference.

 

Portability

A portable mortgage can be transferred from one property to another if the borrower wishes to move.

 

Rebuild cost

The cost of rebuilding a property if it is destroyed. Used by insurers.

 

Remortgage

To re-arrange a mortgage, with a new lender, without moving house.

 

Repayment mortgage

Where monthly mortgage payments include interest and part of the capital of your loan each month, reducing the outstanding balance.

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Repayment vehicle

This is a means of repaying an interest only mortgage. – Examples include; investing in stocks and shares, pension, endowment or the sale of another property.

 

Right to Buy scheme

Government scheme to encourage home ownership. Council, and some housing association, tenants are given the right to purchase the property they rent at a reduced price.

 

Service charge

Fee paid to a managing agent for the ongoing maintenance of a leasehold property.

 

Shared ownership

The purchase of a share of a property (usually between 25% and 75%). The remainder is owned by a housing association to whom rent is paid based on the portion of the property they retain.

Shared equity

The purchase of a share of a property (usually between 25% and 75%). The remainder is owned by a housing association. No rent is paid but an interest payment may become due to service the remaining value of the property.

 

Stamp duty/ Stamp duty land tax (SDLT)

Tax payable to the government when purchasing a property. Rates vary depending on the value of the property to be purchased and the use of the property.

 

Standard variable rate (SVR)

A lender’s default mortgage interest rate often charged after an initial mortgage deal.

 

Starter Homes Initiative

A government scheme that promises to build 200,000 new homes for first-time buyers aged under 40. Buyers will be given a minimum discount of 40%.

Sub-prime/non-conforming mortgage

For applicants who have had credit problems.

 

Tie-in period

The period that an early repayment charge is payable, if a mortgage is redeemed. Some mortgages have an extended Tie-in, which extends beyond the introductory rate has ended.

 

Tracker mortgage

Mortgage where the interest rate tracks the Bank of England base rate at a set margin above or below it.

 

Valuation survey

A valuation carried out by a qualified surveyor on behalf of a lender to check whether the property is worth the purchase price.

 

Variable-rate mortgage

The interest rate can go up or down, the rate and any changes are dictated by the lender.

 

Vendor

The seller of a property/current owner

Whole of Market Mortgage adviser

A whole of market mortgage advisor or firm is not tied to a single lender or panel of lenders. A whole of market mortgage adviser has access to any lender, that deals with the wider intermediary market

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