Jargon buster

Our A-Z mortgages jargon-buster explains the most common mortgage jargon in one place, so you can easily find out what the banking terms mean.

A mortgage providers confirmation that you will be able to borrow a specific amount. This
can be used to demonstrate to a seller that you can afford to buy their property.

The annual percentage rate (APR) is the total cost of a mortgage, including interest and fees. It assumes that you will have the mortgage for the entire term, so it may not be a useful way to compare deals.

A mortgage application fee. Most mortgage lenders will allow you to add this fee to the loan, but you will be required to pay interest on it for the duration of the loan.

If you go into arrears, it means you have ‘defaulted’ at least once, which means you have missed a month’s payment on your mortgage repayment. If you suspect you may be in arrears, contact your lender as soon as possible.

The Bank of England’s interest rate, which tracker mortgages and standard variable rate mortgages usually follow.

A type of mortgage set-up fee.

An adviser who can assist you in obtaining a mortgage. Be aware that some brokers will receive a higher commission for recommending specific deals than others; moreover, some of the best mortgage deals are only available if you apply directly.

Insurance that protects you against structural damage to your home. When you apply for a mortgage, your lender will require you to have this in place. Learn more about building insurance.

A buy-to-let property is purchased solely for the purpose of renting it out to tenants. For this purpose, most mortgage lenders offer special buy-to-let mortgage deals.

The amount of money borrowed in order to purchase real estate.

If your mortgage has a capped rate, your lender’s interest rate will never exceed the upper ‘capped’ limit, regardless of changes in the Bank of England base rate.

Your lender will give you a lump sum of cash upon completion of this type of mortgage. To determine whether it’s a good deal, you should factor this into the total cost of your mortgage over the initial period.

County Court Judgement.  These are made against you for lack of payment of debt and may make it more difficult for you to obtain a mortgage.

If you have a collar on your mortgage, your interest rate will not fall below the specified amount. So, if interest rates fall to 3.75 percent and your deal is locked in at 4 percent, you’ll miss out on the savings that this lower rate would bring.

The legal procedure that must be followed when purchasing or selling property. A solicitor or licenced conveyancer can handle this.

Your mortgage, credit card, and loan debts, as well as the balances of your current and savings accounts, are all combined into one account. Because your credit balances offset your debts, you only pay interest on the difference. These are typically more expensive than standard mortgages.

This is the amount you must contribute to the purchase price of the property. The minimum deposit required is usually 5%, but the best deals are available to those who can pay a deposit of at least 40%.

A discounted-rate mortgage is one in which the interest rate you pay is a fixed amount less than your mortgage lender’s standard variable rate (SVR). For instance, if the lender’s SVR is 5.5 percent and the discount is 1%, you will pay 4.5 percent.

Fees you must pay if you want to leave your mortgage during a specified period, usually the initial deal.

A type of interest-only mortgage in which you also contribute to a type of investment known as an endowment in order to pay off the mortgage at the end of the term.

The amount of the property that you own outright, for example your deposit plus any mortgage payments.

An equity release scheme allows older homeowners to access the cash that is locked up in their home. Lifetime mortgages and home-reversion schemes are the two types. These plans should only be purchased after seeking independent financial advice.

Family members (usually parents) who want to assist first-time buyers in getting on the property ladder. Your savings are offset against your child’s (or family member’s) debt, lowering the amount they owe and pay in interest.

The mortgage interest rate remains constant for the duration of the loan, which can range from one to ten years. This means you’ll know exactly how much you’ll pay on your mortgage each month because your rate won’t fluctuate with the Bank of England’s base rate.

A flexible mortgage deal allows you to overpay, underpay, or even take a mortgage payment holiday. This can help you pay off your mortgage faster and save money on interest, but flexible mortgages are typically more expensive than conventional mortgages.

You own both the building and the land on which it stands.

When an offer on a property is accepted, then a different buyer makes a greater offer, which the seller accepts.

A third party who agrees to pay your mortgage payments if you are unable to do so. typically, the guarantor is the first-time buyer’s parent or guardian.

The government has developed a variety of Help to Buy schemes, including equity loans, mortgage guarantees, Isas, and Scotland and Wales-specific schemes. They are all designed to make home buying easier.

A tax-free savings account into which the government provides a cash bonus towards the purchase of a home for first-time buyers. The government will deposit a further £50 for every £200 saved, up to a maximum of £3,000.

If you borrow more than 75% of the property’s worth, your mortgage lender might charge you this fee. It safeguards the lender against your mortgage defaulting.

You only pay the interest on your mortgage each month, with no repayment of the capital loan. The aim is to save enough money to pay off the mortgage using other methods at the conclusion of the term, such as through stock market investment, pension endowment, or the sale of another property.

An expert who can assist you in obtaining a mortgage. 

A loan obtained by two or more people. This is useful if you are purchasing a home with a partner or friend, and it can also be used by parents who wish to assist their children in purchasing a home.

The official body in charge of keeping track of property ownership records.

You own the building but not the land it sits on, and only for a limited time (anything up to 999 years). If the lease on the property you wish to buy has less than 70 years left on it, you may have difficulty getting a mortgage.

See ‘equity release schemes.’

The amount of your mortgage expressed as a percentage of the property’s value. People who borrow 60 percent or less usually get the best bargains.

The monthly payment you make to your mortgage lender. If you have a repayment mortgage (which is the most common type), your payment will cover a percentage of your mortgage plus interest.

See ‘agreement in principle’.

A formal contract between a lender and a borrower describing the borrower’s legal obligations and the lender’s rights if the borrower fails to make a repayment.

Insurance that covers your mortgage payments for a set period of time, generally a year, if you are unable to work due to an accident, illness, or unemployment. It is also referred to as ASU insurance.

The length of time you expect to carry the mortgage for.

When the value of your home falls below the amount still owed on your mortgage.

An offset mortgage connects your mortgage to your savings account and, in some cases, your current account. Your credit card balances are offset against your mortgage debt, so you just pay interest on the difference while simultaneously repaying the capital.

If you relocate, you can transfer your borrowing from one home to another without paying any arrangement fees.

The cost of rebuilding your home if it is destroyed for insurance purposes.

Changing your mortgage without relocating. This can be done to save money, switch to a different sort of mortgage, or release equity from your house.

You pay off the mortgage interest and a portion of the loan principal each month. Unless you skip any payments, you will have paid off your mortgage by the end of the term.

This is the method by which you expect to pay off your mortgage at the conclusion of the term, as required by lenders if you take out an interest-only mortgage – for example, another house or a stocks and shares portfolio.

Originally designed to allow tenants of council houses to purchase their homes, the scheme is currently being extended to housing association renters as well.

a fee paid to a management agent for the upkeep of a leased property.

You purchase a portion of a property (typically between 25% and 75% ownership) and pay rent on the remainder, which is owned by the local housing association.

Stamp duty land tax (SDLT) is payable on properties bought for more than £125,000, or £40,000 if it’s either a second home or buy-to-let property.

The default mortgage interest rate that your lender will charge after your initial mortgage deal period ends. This figure may be greater or lower than your initial rate.

A government initiative that has yet to be implemented that promised to develop 200,000 new homes for first-time purchasers under the age of 40. Buyers were to receive a minimum 20% discount.

A sub-prime, or non-conforming, mortgage is designed for those with poor credit. It is now considerably more difficult to obtain a subprime mortgage than it was before the credit crunch.  

This is the time when you are ‘locked in’ to your mortgage contract. If you quit your mortgage during this time, you will have to pay an early repayment charge.

Your mortgage interest rate follows the Bank of England base rate by a certain margin above or below it.

Lenders always conduct a valuation survey to see if the property is worth roughly what you’re paying for it. You should always conduct your own survey to rule out any structural issues.

Your mortgage’s interest rate can rise or fall in accordance with your lender’s regular variable rate.


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