7 June, 2016
With all of the jargon that surrounds mortgages, it can feel like lenders are talking gibberish much of the time. The last thing you need when you're buying a house is to have to learn a new language just to understand what's going on. Fear not, though, we're here to help you make sense of it all.
Below is a list of the main words and phrases you'll hear during the mortgage-securing process, with a basic explanation of what each one means.
Agreement in Principle (AIP) - A document from your lender that shows your mortgage application has been conditionally accepted. You can show this to a seller to prove you're ready to buy their property.
APRC (sometimes just APR) - Stands for Annual Percentage Rate of Charge and is a representative interest rate, in percentage form, designed to help you compare one mortgage with another. It includes the interest rate and all relevant fees.
Arrangement fee - A set-up fee charged by lenders to arrange your mortgage. The average fee is around £1,000, but most lenders will allow you to add the cost to your loan. Just bear in mind you'll pay interest on it this way.
Base rate - Usually refers to an interest rate set by the Bank of England which is followed by tracker mortgages and some standard variable mortgages.
Booking fee - Another pesky arrangement-type fee, charged by the lender for reserving the money you're borrowing. Expect to pay around £100.
Broker - A middle-person who will help you find and arrange a mortgage. They take a cut but using one can lead to better deals.
Buy-to-let - Referring to the purchase of a property specifically for letting purposes - and the dedicated mortgages that are used in these transactions.
Capital - The amount you're borrowing overall.
Capped rate - This is a good thing to aim for; it means the interest rate you pay won't ever exceed the stated limit.
Cashback mortgage - Have one of these and you'll be given a sum of cash upon completion. Either put this back into the overall cost or treat yourself!
Collar rate - The opposite of a capped rate - your rate won't fall below this level so you could miss out on savings.
Deposit - The lump sum you're required to put down yourself. The size will influence how much you're able to borrow and how much you'll pay monthly.
Discounted mortgage - As you'd guess, a special deal with a lower interest rate. If the Standard Variable Rate (SVR) is 4% and the discount is 1%, you'd pay 3%. The figure can still fluctuate, though.
Early repayment charges - If you pay off your mortgage before the agreed term is up, you'll be charged a set of fees; usually a percentage of the outstanding balance.
Equity - The amount of your property that you actually own. If you have a £85,000 mortgage on a £100,000 property, your equity is 15 per cent.
Fixed-rate mortgage - A deal that lasts over a set time period. You might have a two-year fixed rate mortgage at 3%. This means it'll stay as it is for two years, then become subject to change.
Freehold - You own the building and the land it stands on; the opposite of leasehold.
Guarantor - Someone guaranteed to step in should you struggle to meet your repayments - usually a parent or child. Financial reinforcements, in a sense.
Help-to-buy - A government initiative that aims to help people purchase property using equity loans and mortgage guarantees.
Higher-lending charge - If you borrow more than three-quarters of a property's value, your lender may charge some extra fees. It's essentially a safety net in case you default.
Interest-only mortgage - Get one of these and you'll only be required to pay the monthly interest on the capital sum. You'll then pay the remaining balance at the end of your term, so be prepared.
Key Facts Illustration - Basically the small print, but the important stuff. All of the details that you need to know about your agreement (fees, terms etc.)
Land Registry - An organisation which holds records of who owns what land in the UK.
Leasehold - If a property is leasehold, it means someone else owns the land on which it's situated. Technically, you're only buying the right to live there for a certain period of time, and you may also have to pay ground rent. This is more common with apartment blocks. The opposite of freehold.
Let-to-buy mortgage - These allow you to borrow money on a rental property to help with the purchase of your own home.
Loan-to-value - Your mortgage size in relation to how much your property is worth; the opposite of Equity.
Mortgage deed - The formal contract between a borrower and lender, detailing the legal obligations and rights of both parties.
Mortgage term - The agreed length of time you have to repay your mortgage.
Negative equity - When the amount you owe on your mortgage is larger than the property's value. The primary cause is falling housing prices, and it can make it difficult to move home or remortgage.
Offset mortgage - Allows you to reduce the amount of interest you pay by using savings. It could be the key to finishing early or making the whole thing a little more manageable from month to month.
Overpayment - When you choose to pay extra on your mortgage, or to finish it off with one lump sum. Remember you may be charged a fee for the privilege.
Payment holiday - A pause of sorts, that allows you to stop paying your mortgage off for a set period of time. Interest will still be charged throughout.
Portability - You'll need this if you want to be able to transfer your mortgage between properties. Ideal if you plan to upgrade sooner rather than later.
Remortgage - When you switch from one lender to another without moving out. This may be done to obtain a better deal.
Repayment mortgage - You pay off the interest and a bit of the capital each month; providing you don't miss any payments, you'll have full ownership at the end of the term.
Repossession - The legal process a lender will go through if you don't keep up with your payments. It's essentially them taking your home from you to sell at auction, with the proceeds covering their fees.
Shared ownership - Where you own a part of the house (usually between 25% and 75%) and the local housing association owns the rest. You pay rent on the bit that's not yours.
Standard variable rate (SVR) - The standard interest rate your lender will charge after your introductory deal ends. If you have a two-year fixed rate mortgage, for example, it'll return to the SVR after two years.
Stamp Duty - A tax payable when you buy a property for more than £125,000; it'll be a percentage of the overall cost, going up in increments depending on value.
Tracker mortgage - Your lender follows, or 'tracks', the Bank of England base rate and applies it to your mortgage throughout the term.
Valuation survey - Your lender will carry out one of these to determine how much a property is truly worth before they loan you the money. You'll more than likely be charged.
Variable-rate mortgage - Your mortgage's interest rate will go up and down depending on your lender's standard variable rate (SVR).
So there we have it - all of the popular terms you're likely to hear. Why not print this page and keep it with you during the application process? You'll be speaking fluent Mortgage in no time!