Cut through industry jargon with these dictionary definitions.
We know that applying for a mortgage can be a stressful process and understanding the financial jargon that comes with it can be an equal nightmare. We have come up with a handy A-Z glossary to de-code the mortgage jargon so that you can focus on making the right decision for your situation.
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Agreement in principle (AIP). This is a certificate or statement from a lender to say that they agree to lend you a mortgage based on some basic information about your financial history that you will be required to submit.
APRC. This stands for Annual Percentage Rate of Charge. This is the standard interest rate calculation designed to reflect the total amount of interest that will be paid over the entire period of the mortgage.
Arrangement fee. This is a fee that a lender may charge for setting up and providing you with a mortgage. This fee is normally paid on completion.
Arrears. You will go into arrears if you have defaulted or missed at least one month’s mortgage repayment.
Booking fee. This is a fee for setting up your mortgage.
Buy to let. This describes a mortgage for a property you own and intend to rent out to a tenant, you are buying it to rent/let.
Capital. This is the total amount of money that you have borrowed from a lender in order to buy a property.
Capped rate. This applies to variable mortgage deals, your interest rates can fluctuate but they are capped to ensure that your mortgage payments do not go above a certain amount.
Cashback mortgage. This is a type of mortgage where your lender gives you a certain amount of cash back on completion of the mortgage.
Collared rate. This is a type of variable mortgage, your interest rates can fluctuate but your repayments are collard to ensure that your mortgage payments do not fall below a certain amount.
Credit rating. This is an estimate of your ability to fulfil your financial commitments based on your previous financial dealings, if you have a good credit rating you are seen as someone who is financially reliable and therefore lenders are more likely to loan you a mortgage.
Decision in principle. See Agreement in principle (AIP).
Deposit. This is the amount of money that you put down towards the purchase of your property. The more money you are able to put down, i.e. the higher your deposit, the more likely you are to get a mortgage deal and the lower your interest rates are likely to be.
Discount mortgage. This is a type of variable rate mortgage. With this type of mortgage you will be charged interest rates at a discounted rate to the lenders standard variable rate. For example if your lender has a SVR set at 4% and you have a discount of 1% you will pay 3% interest.
Early Repayment Charge (ERC). If you repay your mortgage early or overpay more than your overpayment allowance some mortgage providers will charge you an early repayment fee.
Equity. The amount of property that you own outright, this would be your deposit plus the capital you’ve paid off on your mortgage.
Family guarantee mortgage. This is offered by some providers as an option for those who cannot afford to pay a deposit themselves but who have a parent or family member who is able and willing to provide a guarantee to secure against the property.
Fixed rate mortgage. This is when the mortgage interest rate stays the same for a set period of the deal. Your repayments will be the same each month during this fixed period, which can last from anywhere between one and ten years.
Guarantor. This is a third party who is able and willing to meet your monthly mortgage repayments if you are unable to do so. Guarantors are used for mortgages aimed at first-time buyers or those requiring only a small or no deposit.
Help to buy. These are government run schemes aimed at making it easier for people to purchase a property.
Interest only mortgages. This means you only pay off the interest on the loan and nothing off the amount you borrowed. They offer low monthly repayments but it means that you will still have the outstanding mortgage to repay at the end of the mortgage term.
Joint mortgage. This is a mortgage that is taken out by two or more people. There are two ways you can take out a joint mortgage. You can either take out a mortgage as joint tenants or as tenants in common.
Joint tenants. This refers to taking out a joint mortgage. It means that all of the borrowers would be seen legally as one single owner and they would have equal rights in the property. This option is usually used by long term couples.
Loan to value (LTV). Your LTV shows how much mortgage you have in relation to how much your property is worth. This is usually displayed as a percentage showing the amount that you have borrowed against the amount of the property that you own. The higher the LTV the higher the interest rate and the harder it is to get a mortgage.
Monthly repayment. This is the amount you pay to your mortgage lender each month. Usually you will be paying back a percentage of your mortgage plus interest, but this depends on the type of mortgage you take out.
Mortgage term. This is the length of time you have a mortgage for. Typically a mortgage term is around 25 years.
Negative equity. You will have entered a state of negative equity when the value of the property falls below the amount that you borrowed. If you sold the house it would not cover your mortgage.
Offset mortgage. These are mortgages which are linked to your savings account. Your savings will be offset against the value of your mortgage so you’ll only pay interest on your mortgage balance minus your savings balance effectively reducing the amount of interest you pay. Your savings won’t be used to repay any of your mortgage they just save you interest.
Portability. This is when a mortgage can be transferred if an individual moves house.
Product fee. Many lenders will charge you a product fee which is the cost of choosing a specific mortgage.
Redemption administration fee. This is a fee charged by your lender in order to close your mortgage at the end of the term.
Remortgage. This is where you switch your current mortgage to a new mortgage deal either with the same or a different lender.
Repossession. If you are unable to pay back your mortgage payments your lender has the right to repossess your property and sell it to cover what you owe them.
Shared ownership. This is a scheme whereby you buy part of a property from a local authority or housing association and rent the remaining part.
Stamp Duty Land Tax. You must pay Stamp Duty if you buy a property or land over a certain price in England, Wales and Northern Ireland. The current threshold is £125,000 for residential properties and £150,000 for non-residential land and properties.
Standard variable rate (SVR). A type of variable rate mortgage. This is the interest rate that will be determined by your mortgage lender. This is the rate that you will be charged after your initial fixed period ends.
Tenants in common. This refers to a way of taking out a joint mortgage. If you choose to take out a mortgage as tenants in common you would legally own separate shares in a property. This means that if you decide to move, you can sell your share in the property separately. This option is usually used when friends or business partners are purchasing a property together.
Tracker mortgage. This is a type of variable mortgage. It describes a mortgage that ‘tracks’ the interest rate of the Bank of England to then set margin above or below it. The interest you will be required to pay on your mortgage will rise and fall in line with this base line interest rate. You can agree a short term or long term tracker rate.
Variable mortgages. This refers to the type of mortgage where the amount of interest you are charged could go up and down depending on the lenders set rate. There are three types of variable rate deals, trackers, standard variable rates (SVRs) and discounts.
Valuation fee. This is a fee charged by your mortgage lender for them to carry out a valuation of your property.