Jargon Buster

 

Taking the mystery out of mortgages.

Agreement in principle (AIP):  This is a written statement from a lender showing how much they are prepared to lend to you. A decision in principle is a provisional acceptance of a mortgage prior to full application. This can be used as evidence to the seller that you are able to proceed with the purchase.

APR: This stands for the Annual Percentage Rate and is calculated to factor in the total interest cost, plus any fees over the full term of a mortgage.

Arrangement fee: This is the fee you pay the lender to set up your mortgage. Typically, the best mortgage rates often carry the biggest fees. The fee can be paid upfront or added to the mortgage. If you choose to add the fee to the mortgage interest will be charged for the term of the mortgage. Always factor in the fee when comparing deals.

Arrears: This means you have missed at least one of your mortgage repayments. If you continue to do so, you risk losing your home.

Base rate: This is the interest rate set by the Bank of England (BOE) and some mortgages are based on it. Tracker mortgages, for example, are set at a certain percentage above the base rate.  Once a month the BOE Monetary Committee meet to decide whether to hold, increase or decrease the BOE Base Rate. 

Beneficiary: The person you choose to receive the insured sum if you die during the term of the policy.

Booking fee: This is charged upfront by some lenders and pays for ‘booking’ the mortgage while your application goes through. It can also be called a ‘reservation’ fee.

Broker: An advisor who can help you arrange a mortgage. Typically, Brokers have a comprehensive panel of lenders and have access to exclusive products to ensure they can recommend the most suitable mortgage deal saving you time and money.

Building Survey: The last of the three basic types of house survey.  It is an in-depth look at the property's condition, with advice on defects, repairs and how to maintain the property.  A Building Survey is not a valuation of the property and therefore would need to be carried out in addition to the Condition Report/Basic Survey for mortgage purposes.

Buy to Let: A property that is bought with the sole intention of letting it to tenants.  Most lenders offer special buy to let mortgage deals for this purpose.

Capital: This is the mortgage amount you borrow to buy your property.

Capped Rate: This is a mortgage deal where the interest rate charged by the lender will never exceed the upper “capped” limit, regardless of increases to the Bank of England Base Rate.

Cashback mortgage: With this type of mortgage, the lender offers a certain amount of cash on completion.  The cash is paid to your solicitor.  You should factor in any cashback when comparing the total cost of the mortgage over the initial mortgage period.

CCJ (County Court Judgement): This is made against you for non-payment of debt and could make it harder for you to obtain a mortgage.

CHAPS fee: This covers the lender’s costs when your mortgage funds are sent to your solicitor.

Chattel: A chattel is the name given to any moveable asset in a property i.e. furniture. Chattels are not included in the purchase price unless specifically stated.

Completion: This is the point at which the property purchase has been made and you can collect your keys and move in. 

Condition Report: The first of the three basic types of house survey.  It covers the property's condition, including any risks, potential legal issues and major defects. Also referred to for mortgage purposes as a basic valuation.  Its purpose is to assure the lender that the property is worth the price paid and is suitable security for the mortgage.

Conveyancing: The legal process involved in buying or selling your property.

Credit score: Every borrower has a credit score. Lenders will look at your score to determine whether they will accept your mortgage application. The better your credit score, the more likely you are to be accepted.

Critical Illness Cover (CIC): Usually added onto a life insurance policy. If diagnosed with one of the defined serios illnesses specified by your insurer during the policy term, the insurer will pay a set amount to help support you and your family.

Death in Service: Often offered by employers. The policy will usually pay out a multiple of your salary to your chosen beneficiary if you die whilst employed.

Decision in Principle (DIP):  This is a written statement from a lender showing how much they are prepared to lend to you, subject to approval of the property. A decision in principle is a provisional acceptance of a mortgage prior to full application. This can be used as evidence to the seller that you are able to proceed with the purchase.

Disbursements: These are expenses that are paid on the buyer’s behalf by a solicitor or conveyancer.

Discounted mortgage: This is a variable rate mortgage which offers a discount off another interest rate, such as the Standard Variable Rate. For example, if the SVR is 5% and the discounted rate is 1% below the SVR, you would pay 4%.

Early Repayment Charge (ERC): If during the initial rate period of your mortgage you should repay your mortgage in full or exceed the pre-agreed overpayment facility.  The ERC is a penalty fee you may have to pay to the lender.

Endowment: A type of investment that you pay into, for the purpose of receiving a lump sum that can be used to repay the capital left owing on an interest only mortgage.

Energy Performance Certificate (EPC): If you’re selling or renting a property, you’ll need to have a valid EPC as it tells potential buyers how energy efficient your home is and what can be done to improve it.

Equity: This is the value of your property over and above the amount of your mortgage. If your home is worth £200,000 and your mortgage is £50,000, the equity is £150,000.

Esis: A document which details the key things you need to know about your mortgage.

Exchange: This is when a buyer and seller have exchanged contracts and the deal becomes legally binding.

Exit fee: This is a fee for closing your mortgage account when you have repaid your mortgage.

Family offset mortgage: Used by family members (typically parents) who wish to help other family members (typically children) buying a home for the first time. Savings are balanced against the mortgage debt so that the amount they owe and pay interest on is reduced.  These savings may also remove the need of a further cash deposit by the buyer.

Fixed rate mortgage: This is a mortgage which offers a fixed rate of interest for a number of years – typically two, three or five.

Freehold: This means you are the owner of the property and the land it is on.

Full structural survey: This survey offers a comprehensive breakdown of the structure and condition of the property. It is a good option if the property you are buying is particularly old or unusual in structure.

Gazumping: This is when a seller has accepted an offer from one buyer, but then accepts a higher offer from another buyer before the contracts have been exchanged.

Gazundering: This is when the seller has accepted an offer, but the buyer reduces their offer before the contracts are exchanged.

Ground rent: This is paid by the leaseholder to the freeholder of a property. You will often pay this if you live in a flat.

Guarantor: Someone who guarantees to meet the mortgage sum if the borrower cannot meet their repayments.

Help to Buy: A Government scheme designed to make homebuying easier.  For further details visit https://www.helptobuy.gov.uk/

Higher Lending Charge: You may be charged this fee by the lender if you have a small deposit i.e. 5% of the purchase price.

Homebuyer’s report: The second of the three basic types of house survey and the most popular with buyers. This survey highlights problems such as damp, dry rot and subsidence and offers advice on what can be done to resolve those problems. It is a good option for modern properties or buildings in reasonable condition.

Interest-only mortgage: With this type of mortgage, you only pay the interest on your mortgage during the term of the loan, and not the capital. The final mortgage balance must be repaid in full at the end of the term.

Joint Mortgage: A mortgage taken out by two or more people.

Joint Mortgage, Sole Proprietor: A mortgage taken out by two or more people but, only one party is named the legal owner at the HM Land Registry.

Key facts illustration (KFI): A document which details the key things you need to know about your mortgage.

Landings and Buildings Transaction Tax (LBTT): If you are buying property or land in Scotland you may have to pay a tax on it. The amount of LBTT you pay depends on which band your purchase falls into.

Leasehold: This means you have the right to live in a property for a set number of years but do not own the building. Flats are typically leasehold.

Legal fees: The fee you pay to your solicitor to complete all legal/paperwork. If you are buying a property, it will include Stamp Duty and search fees.

LIBOR: The London Inter-Bank Offered Rate is effectively the rate that banks lend to each other.

Loan to Value (LTV): The proportion of the property price you borrow by way of a mortgage. If you borrow £75,000 on a property worth £100,000, the LTV would be 75%.

Mortgage Deed: The legal document which formalises the mortgage agreement.

Mortgage Protection Insurance: A form of decreasing term life insurance, designed to cover the amount of debt you have outstanding on your mortgage.

Mortgage in Principle: A mortgage in principle is a written statement from a lender showing how much they are prepared to lend to you, subject to approval of the property. A mortgage in principle is a provisional acceptance of a mortgage prior to full application.  This can be used as evidence to the seller that you are able to proceed with the purchase.

Mortgage offer: Once the mortgage lender has processed your mortgage application and if satisfied, they will issue a mortgage offer to confirm that the mortgage loan has been approved. Both you and your solicitor or conveyancer will receive a copy.

Mortgage term: The length of time over which you agree to pay off your mortgage.

Mortgage valuation: A basic survey carried out by your lender to check the property is adequate security for the loan.

Negative equity: This is when the amount you owe on your mortgage is greater than the value of your property.

Offset mortgage: A type of mortgage which allows you to ‘offset’ your savings against your mortgage debt. If you had a mortgage of £150,000 and savings of £50,000, you would only pay interest on £100,000 of the mortgage. You can then either pay off your mortgage early or reduce your monthly repayments.

Overpayments: Many lenders allow you to make overpayments of up to 10% of the outstanding mortgage debt each year, penalty-free. Overpayments will reduce your mortgage term if you repay your mortgage loan on a capital & repayment basis.  Overpayments will reduce your monthly mortgage payments if you repay your mortgage loan on an interest only basis.

Own buildings insurance fee: If you decide not to take out buildings and contents insurance with the mortgage lender directly, they may charge you a fee to check you have a valid policy in force. It is usually around £25 to £50.

Peppercorn ground rent: When the ground rent is a very small amount it is known as a peppercorn ground rent. The freeholder usually does not collect the money, meaning there is effectively no ground rent to pay. 

Porting: If you are moving home and want to keep your existing mortgage, many lenders allow you to ‘port’ it across.

Rebuild Cost: For insurance purposes, the cost of rebuilding you home if it destroyed.

Remortgaging: This is when you arrange a new mortgage on your existing home.

Repayment mortgage: With this type of mortgage, you pay off both the interest and a portion of the capital debt.  Subject to maintaining repayments on the mortgage by the end of the term, you will no longer owe anything to your lender.  This is the safest way to ensure your mortgage is repaid in full at the end of the mortgage term.

Repayment Vehicle: If you take an interest only mortgage, this is the means by which you are intending to pay off the mortgage at the end of the term i.e. endowment.

Searches: Searches are carried out by your conveyancer when you are buying a property. There are three main types: local authority, water drainage and environmental.

Shared ownership: These schemes are offered by housing associations and allow you to part-buy and part-rent your home.

Stamp Duty: Tax you must pay when you purchase a property. It is charged as a percentage of the purchase price and rates are tiered.

Standard Variable Rate (SVR): The variable rate a mortgage reverts to once the introductory fixed or tracker rate period ends. Because it is usually more expensive, you should always switch to a better deal.

Title deeds: These are paper (or digital) documents that show the ownership history of property and land. They can include contracts for sale, mortgages, conveyances, leases, and many other things relating to the property.

Tracker mortgage: A variable rate mortgage which typically tracks the Bank of England base rate. Your monthly repayments will change when the base rate moves up or down.

Trust: Your life insurance sum is part of your estate, including your house, savings, and other assets.  On death your estate maybe subject to inheritance tax.  A Trust can help you avoid inheritance tax and bypass probate in certain cases.

Valuation: There are three basic types of house survey; Condition Report, Homebuyer Report and Building Survey.

Valuation fee: The fee you will pay upfront for your lender’s survey.

Vendor: This is another name for the person or people selling a property.

Waiver of Premium: Life insurers offer the option to waive your premium in circumstances where you cannot pay your premiums for example poor health, redundancy.

 

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