Mortgage Glossary

Adverse Credit – This term is used when a mortgage applicant has a low credit score. This may be due to missed payments on bills in the past, county court judgements or bankruptcy. It is possible to get a mortgage with ‘bad’ credit. These are called Adverse Credit Mortgages. Guide to Getting a Mortgage with Bad Credit

Agreement in Principle – When a mortgage application is accepted by a lender, the applicant will receive an Agreement in Principle. The mortgage offer at this point could be withdrawn if your circumstances change. Guide to Applying for your First Mortgage

Annual Percentage Rate Change (APRC) – This figure will be quoted as a percentage on all mortgage advertisements. It shows the interest rate to be paid over the length of the mortgage term. Guide to Mortgage Types

Arrangement Fees – This covers the administration costs of setting up a mortgage. Guide to Applying for your First Mortgage

Arrears – If you fail to make a mortgage repayment, your account goes into arrears. When this happens your mortgage loan increases with interest payable. Guide to Mortgage Arrears

Base Rate – This is the benchmark rate of interest set by the Bank of England. This is subject to change and is designed for inter-bank lending. In relation to mortgages, tracker mortgages will advertise rates that fall closely to the base rate figure.

Broker – A broker is a person who is specially equipped and trained to find and apply for mortgage deals on behalf of their clients. Guide to the Benefits of Broker Advice

Buildings Insurance – These policies cover damages to buildings including walls and floors, as well as fitted kitchens and bathrooms.

Building Society – A financial organisation which lends money to mortgage applicants.

Buy to Let – A property that is purchased for renting to others. Guide to Buy to Let

Capital – This is the money used to purchase a property. It is separate to the interest charged within any given mortgage deal.

Capital Gains Tax – Taxation paid when an asset (such as a buy to let property) is sold. It is payable on the increase in value, not the overall funds received in a sale.

Capped Rate Mortgage – A form of variable rate mortgage, where the maximum percentage of interest is limited to an agreed amount for an introductory period. Capped Rate Mortgages

Cashback Mortgage – This is a mortgage type where the introductory offer gives money back to the customer. Cashback schemes are designed to incentivise borrowers to seek loans. Cashback Mortgages

County Court Judgement – Also known as a CCJ. Having a county court judgement to your name can negatively affect your credit rating, as it stays on your credit report for six years.

Collar – Mortgages with a ‘collar’ have a minimum interest rate that can be charged for the loan, over a specified period.

Completion – The date that a property sale is completed and the new owner receives the keys. Guide to Buying and Selling Property

Conveyancing – Legal representative that exclusively deals with the transfer of property ownership.

Credit Report – Each mortgage applicant has a credit report that tracks their history in obtaining and maintaining credit agreements. The better your credit score is, the more choice you will have of mortgage deals. Guide to Improving your Credit Rating

Deeds – A legal document outlining the ownership of a property.

Deposit – The amount of money, made up of an individual’s savings, which is then used as down payment on a house. 

Discounted Mortgage – These offer introductory rates of interest to new mortgage borrowers. These are for a limited time only. Discounted Mortgages

Drawdown – Feature of self-build mortgages and lifetime mortgages. This is where the loan is split, allowing borrowers access to varying sums of money at any one time.

Early Repayment Charges – These are payable if a mortgage borrower wishes to exit a mortgage deal before an agreed period. Charges vary, depending on the deal. Guide to Applying for your First Mortgage

Endowment Mortgage – A mortgage tied to an endowment insurance policy, where customers pay a premium. This is then designed to pay out a sum of money, upon maturity. This money will then pay back the mortgage capital on a loan. Although there is no guarantee that the policy will provide all of the necessary funds upon its maturity. Endowment Mortgages

Energy Performance Certificate – These are required on buy to let properties and home buyers reports. The documentation scores a property’s energy efficiency.

Equity – The current value of the property minus the outstanding liabilities (i.e. mortgage loan) equals the equity.  Guide to Negative Equity

Equity Release – A financial agreement where the homeowner stays in the property but can borrow additionally on their home. The money is paid back to the lender upon death or going into long-term care, typically involving the sale of the property. Although with some schemes, it is possible to pay the equity release loan back in full, before death or entry into long-term care.

Exit Fees – Charge associated with a mortgage borrower leaving the deal before the agreed fixed period has elapsed.

Family Offset Mortgage – Monies placed into a family offset mortgage can be used as a deposit on a family member’s home. The money put in the specialist savings account is ‘offset’ against the outstanding mortgage loan, thus lowering the total amount of interest charged. Family Mortgages

First-Time Buyer – A mortgage holder looking to buy their first home. Guide to Buying your First Home

Fixed Rate Mortgage – This is where the rate of interest in a mortgage remains the same, for a set period. Fixed Rate Mortgages

Freehold – Means ‘free from hold’ and refers to ownership of both a property and its land, as well as the immovable fixtures within the property.

Full Structural Survey – Detailed inspection of a building, examining the structure and condition of a property. Guide to Buying Property at Auction

Further Advance – Borrowing extra funds on top of an existing mortgage loan.

Gazumping – When a buyer makes a higher offer on a property that has already had an offer accepted by the seller.

Gazundering – A lower offer placed on a property before the exchange of contracts has been completed.

Guarantor Mortgages – A mortgage types where the borrower names a guarantor for the loan (usually a family member) who volunteers to make themselves jointly liable in the event the borrower misses a payment on their mortgage. Guarantor Mortgages

Help to Buy – UK government scheme launched in 2013, aimed to help first-time buyers raise a deposit for a home. At the time of writing, the scheme is divided into several parts including; Help to Buy ISA, Help to Buy Equity Loans, Help to Buy Mortgage Guarantee (the Mortgage Guarantee initiative will not be continued beyond 2017). 

Higher Lending Charge – A charge made by mortgage providers when the loan-to-value ratio is higher than their standard, accepted LTV. These will typically be applied to mortgage loans of around 90% loan-to-value ratio.

Intermediary – This is another term for a mediator and refers to a person/s who apply for loans on behalf of a client. In the case of mortgages, an intermediary would be a mortgage broker.

Interest Only Mortgage – A mortgage where the borrower pays the interest charged on a loan for the length of the term. At the end of the term, the borrower is expected to repay the loan capital in full using an agreed ‘repayment vehicle’ (e.g. proceeds from the sale of a property).  Interest Only Mortgage

Joint Mortgage – A mortgage where two to four people can make themselves jointly liable for the payment of said mortgage. Joint Mortgages

Joint Tenants – Where ownership of a property is jointly divided between 2-4 people.

Key Facts Illustration – Documents containing the full terms and conditions of a mortgage.

Landlord Insurance – Insurance that protects buy to let property owners from financial losses. Tips for Buy to Let Landlords

Land Registry – Non-ministerial department of UK government which registers ownership of land and property in England and Wales.

Leasehold – Ownership of both property and land for the length of a lease agreement made with the freeholder of the land. Many flats and maisonettes are leasehold.

LIBOR – Stands for ‘London Interbank Offered Rate’ and is a benchmark rate of interest which the leading banks charge each other for loans. LIBOR rates can influence a mortgage lender’s rate of interest charged to their customers.   

Lifetime Mortgages – A form of equity release where the borrower agrees to pay off the mortgage capital upon death or going into long term care. Lifetime Mortgages

Loan to Value (LTV) – A ratio which outlines the percentage of home ownership, in relation to the amount of mortgage left outstanding. Example, 90% LTV means the mortgage loan covers 90% of the total value of the property, the other 10% is made up of the borrower’s own deposit funds. Low Deposit Mortgages

Mortgage Payment Protection Insurance – Insurance a borrower takes out to ensure their mortgage payments are made despite illness/injury/loss of earnings.

Mortgage Term – The agreed period in which a borrower makes regular payments towards a mortgage, for example, 25 years.

Negative Equity -  This occurs when the value of a property is lower than the outstanding mortgage loan secured on it. Negative Equity Guide

Offset Mortgage – A mortgage type where the borrower opens a savings account alongside the loan. Interest is then charged on the outstanding mortgage loan, minus the amount of money held in this specialist savings account. Offset Mortgages

Overpayment – When a borrower wishes to pay more than the agreed monthly charge for one or more mortgage payments. Sometimes this can be done without extra charges, although with some mortgage deals, you may be charged for overpayments.

Payment Holiday – Depending on the mortgage deal and your personal credit rating, some mortgage holders may wish to take a break from mortgage payments. This is known as a ‘payment holiday’. In many instances, borrowers must make mortgage overpayments before a payment holiday can be agreed.

Portability – Describes the process of moving a mortgage secured on one property to another. Borrowers will likely need to be reassessed for their current mortgage plan before ‘porting’ the mortgage will be permitted.

Rebuild Cost – This is the estimated cost of completely rebuilding a property. This cost is used for insurance purposes within Buy to Let mortgages. The rebuild cost will typically be lower than property resale value.

Redemption – In reference to mortgages, ‘redemption’ is the termed used when a mortgage loan has been paid back in full.

Remortgage – The process of replacing a current mortgage deal with a new plan. This could be with the same lender or a different mortgage provider. The process of application is the same as applying for a first mortgage. Guide to Remortgaging

Repayment Mortgage – This is a mortgage type where borrowers make monthly payments which pay towards both the capital of the mortgage loan, as well as the interest charged for the loan.

Repayment Vehicle – These are a feature of interest only mortgages. The term refers to a method of payment for the mortgage capital, payable at the end of the mortgage term. A repayment vehicle may include sale proceeds from another property, savings and/or investments.

Repossession – This is the legal process of a lender taking over ownership of a property, where the mortgage borrower has failed to keep up with their mortgage repayments.

Right to Buy – This is a UK government scheme designed to give secure tenants of council/housing association properties the right to buy all, or part, of their home at a discounted price.

Second Charge Mortgage – A type of mortgage which, like a first mortgage, is secured against the value of your home. Failure to repay a first or second charge mortgage could result in your home being repossessed.

Secured Loan – This loan type requires the borrower to secure the loan with an asset (such as a property). This means that if the loan is not repaid, the loan provider reserves the right to repossess the asset and sell it.

Self-Build Mortgage – A specialist mortgage type for those looking to build their own home. A feature of this type is the fact that the loan is released in stages, to provide money at different stages of the home building process. Self-Build Mortgage Guide

Self-Employed Mortgage – This is a specialist mortgage where applicants must prove their income as a self-employed person, with accounts information dating back three years. Self Employed Mortgage Guide

Shared Ownership – A property that is part owned by an individual and part owned by a housing association. A mortgage borrower would take out a mortgage for 80% (as an example) of a home’s value and then pay rent on the other 20%. It is also possible to buy more shares in the property, with the aim of gaining full ownership of the property over time. Shared Ownership Mortgages

Shortfall – A pitfall of some mortgage types, where the amount owed on a property mortgage either falls below the home’s resale value or the borrower has failed to save the full mortgage amount payable at the end of the mortgage term.

Stamp Duty – A land tax charged to those purchasing a property over £125,000 in value.

Standard Variable Rate – A ‘default’ mortgage interest rate charged by a specific lender. These rates can vary and many mortgage borrowers coming to the end of a fixed interest period may be automatically switched to their lender’s standard variable rate of interest. SVR Mortgages

Surveyor – A professional who is qualified to assess the state of repair in properties. A surveyor is needed during the home buying process. 

Telegraphic Transfer Fee – This is a charged applied to mortgage applications and covers the cost of moving money from lenders to borrowers.

Tenants in Common – A feature of joint mortgages and buy to let mortgages, where co-owners have a specific share in a property purchase. This, for example, could be a 60/40% split in ownership.

Tracker Mortgages – These mortgages follow the Bank of England base rate of interest and charge a certain percentage over this changeable rate. Those on tracker mortgages may pay differing sums per month, to cover their mortgage interest payments. Tracker Mortgages

Valuation – For the purposes of applying for a mortgage, the lender must send a valuator to confirm a property’s value, before a loan can be agreed.

Variable Rate Mortgage – This is a type of mortgage where the interest rate charged can change month by month. A tracker mortgage is a variable rate mortgage type.

Get in touch with a mortgage broker, if you need free advice on finding the best mortgage for your needs.

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