Like any professional field, mortgage finance has its own unique terminology. The following list provides some of the most common terms.
APR (Annual percentage rate)
APR is a standard calculation in the mortgage industry and allows mortgages from all lenders to be compared. It is the true cost of the mortgage over the full term set out as a yearly rate, including all fees, terms and interest.
It is very likely that the lender will charge an arrangement fee when taking out a mortgage.
If you go into arrears it means that you have 'defaulted' at least once on your mortgage repayments. You will owe a sum of money 'in arrears' to your lender. If you find yourself in this situation you should contact your mortgage lender to seek help as soon as possible.
Bank Interest Rate
The rate set by the Bank of England, which is reflected in the interest rates charged by lenders.
A survey, carried out by a qualified surveyor, to spot faults and potential problems in the property you are buying.
Buy to Let
A buy to let property is purchased with the sole intention of renting it out to a tenant as an investment.
Buy to Let Mortgage
The main difference with a buy to let mortgage is that the lender takes into account the rent you will earn from the property as the primary source of income. Some may also take the landlord's personal income into account.
The amount you have borrowed on the mortgage, on which you will be charged interest.
With a capped rate, you will pay a variable interest rate but your payments will not go above a certain amount for a set period of time.
Cash back mortgages
Cash back mortgages generally pay out a cash lump sum to the mortgage loan borrower upon the completion of the mortgage.
When you become the legal owner of the property.
Some lenders charge completion fees in addition to an application fee, although these fees are less common. These fees are usually charged on the day that the mortgage completes.
The legal work completed by a solicitor involved in selling and buying property.
If you cannot meet your minimum required monthly mortgage repayment and go into arrears on your mortgage, this is known as 'defaulting'. If this happens you should speak to your mortgage lender about how to remedy the situation and there are also Government schemes designed to help people whose homes are at risk from repossession.
This is the amount you are required to pay towards the cost of the property yourself.
The fees, such as stamp duty and Land Registry fees which you pay to the conveyancer or solicitor.
Discounted rate mortgage
A discounted rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender's standard variable rate (SVR).
Early repayment charge
The charge some lenders make if a mortgage is paid off early.
The total value of your property less the amount of the mortgage and any other secured loans you have.
Exchange of contracts
The point where the property sale becomes legally binding.
With this type of mortgage, you pay a fixed rate of interest for a set period typically over 2, 3, 5 and maybe even 10 years.
You can vary the amount you pay each month and take payment holidays in some circumstances.
A guarantor maybe required by the lender if they feel the borrowers present them with a higher risk on non-repayment of the loan. The guarantor will be required to make the repayments if the borrowers are unable to do so.
Higher lender charge
Not all lenders charge these, but if you borrow a high percentage e.g. if you borrow more than 80% of the price of the property, you may have to pay this type of fee.
These are government schemes designed to help existing tenants and key workers (nurses, teachers and social tenants) to get onto the property ladder.
A detailed valuation that contains a report on the condition of the property, highlighting defects.
The cost to you of borrowing money.
Interest Only Mortgage
With this type of mortgage you are only paying interest each month. This means that although your payments will be lower the amount you borrow will still be outstanding at the end of the mortgage term.
Land Registry fee
A fee paid to the Land Registry to register ownership of a property.
A legal contract which gives the ownership of a leasehold property to the buyer for a fixed period of time.
The provider of the loan to buy the property.
A loan to buy a property. The property acts as security for the loan and so can be repossessed and sold if the mortgage repayments are not made.
Mortgage application fees
Fees charged by the lender to organise the mortgage for you. These are not usually refunded if you then do not go ahead with the mortgage.
The legal agreement which gives the lender a legal right to the property.
The formal offer of a mortgage from a lender.
The length of time over which the mortgage will be repaid.
Your main current account, savings account or both are linked to your mortgage. Each month, the amount in these accounts is offset against your outstanding mortgage before working out the interest you owe.
Your mortgage broker or lender will be able to tell you if your mortgage is portable or not. A portable mortgage may enable you to transfer borrowing from one property to another, sometimes to avoid additional fees or keep a specific discounted rate.
The company providing the cover i.e. life assurance or buildings and contents.
Paying off a mortgage.
If you are looking to change your mortgage to a different deal, but you're not looking to move home then you are 'remortgaging'.
With this type of mortgage (also known as capital and interest) you repay part of the amount borrowed together with the interest being charged each month.
This is a 'front end' charge levied by several home lenders. The idea is you're asked to pay the fee (typically £100 to £300) to secure the funds you are intending to borrow. It is sometimes described as an administration or booking fee.
Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so. The home buyer will enter into an agreement, usually with a local housing association, which sees them take out a mortgage on a share of the property and pay rent on the remainder.
Conveyancing is the legal process to transfer the ownership of a property from the seller to the buyer. If you are buying a property, your solicitor generally works on behalf of the mortgage lender, who usually insists on certain searches before they will release them money for your property.
When you buy a property you may need to pay stamp duty. Calculated as a % of the purchase price of the property.
Please contact us for the current rates of stamp duty.
Standard Variable Rate
This is a rate set by the lender, your payments may rise and fall in line with the Bank of England base rate changes, but not necessarily at the same time or by the same amount or at all. Your lender may not necessarily pass on the change in base rate immediately.
This is a detailed report that can include tests on drains and utilities. It could be very useful if you're thinking about building an extension for example.
The legal documents which set out the ownership of a property.
Tracker rates are usually linked to the Bank of England base rate, which means they'll change in line with changes to the base rate.
This is the most basic type of survey and is the mortgage lender's inspection of the property to assess whether it is suitable for a mortgage.
Valuation and survey fees
You will need to get a valuation and survey carried out on the house you want to buy. A valuation will value the property and tell you how much it is worth, whilst a survey will tell you about the structure of the property and any faults that it may have.