Glossary - explanation of mortgage terminology
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A
- Advance
The mortgage loan.
- Agreement in principle
Agreement by a mortgage lender to lend a sum of money, subject to certain conditions.
- APR
This is the figure quoted by lenders and reflects the total cost of the loan.
- Arrangement fee
A fee paid to the lenders for arranging the loan.
- Arrears
If mortgage payments have not been paid on time and/or are not the correct amount, the borrower is said to be in arrears. If a borrower has a history of arrears it may make it harder to be accepted for a mortgage with a competitive rate.
- Assignment/Assignations of life assurance
The right of a mortgage lender to claim under a life assurance policy to ensure the mortgage is repaid, if you die or at maturity.
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B
- Base rate
The Bank of England base rate determines lending rates in the UK, and is usually the minimum rate at which banks are prepared to lend money.
- Buildings Insurance
Insurance against damage to the structure of a building caused be specific events.
- Buy-to-let mortgage
A type of mortgage for a property that will be let to tenants.
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c
- Capital
The amount of the loan on which the mortgage lender charges interest.
- Completion or settlement date
The date when the money is paid, the deeds are handed over, the keys are released and you can move into your new home.
- Contents insurance
Cover can be arranged for the contents of your home, and can be extended to include possessions away from your home.
- Conveyancing
The legal process involved in transferring a property from one person to another.
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d
- Deed
The legal papers that show ownership of the house and provide information about boundaries and rights of way.
- Deposit
The first instalment of a series of payments to the lender, and is a sign of good faith to the seller when the initial agreement is made.
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e
- Early redemption charges
A fee charged by some lenders if, during an agreed period, you repay the loan or switch to another lender.
- Equity
The difference between the current value of the home and the mortgage amount.
- Exchange of contracts
The point where your contract and the seller’s contract are exchanged.
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f
- Fixed rate mortgages
Mortgage payments are guaranteed to stay the same for a set period of time. There are usually penalties involved if you attempt to redeem the mortgage before the end of the fixed rate period.
- Freehold
Ownership of the house and the land on which it stands.
- Full structural report
A thorough investigation and report on the home’s structure.
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g
- Ground rent
Annual charge payable by a leaseholder to a freeholder.
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h
- Home Buyer’s report
A surveyor’s report on a property, which is less extensive than a structural report.
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i
- Interest only mortgages
Over the term of the mortgage, you pay back only the interest charged, the amount you owe will still be outstanding at the end of the term. You have to arrange how to repay the capital – some people use long-term savings plans, or can afford to make overpayments to their mortgage in order to pay it off by the end of the term.
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l
- Land registration fee
A fee paid to the Land Registry to transfer ownership record of the home.
- Leasehold
Ownership of the home, but not on the land on which it stands. When the lease expires, ownership reverts to the freeholder.
- Loan to value
The ratio, expressed as a percentage, of the amount you want to borrow against the value of the home.
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m
- Mortgage indemnity premium (higher lending fee)
An arrangement that covers the lender if your home is repossessed and the lender can’t get the money back from you. You’re charged a ‘higher lending fee’ to cover the cost of the insurance.
- Mortgage
A loan secured on your home.
- Mortgage offer
The document issued by a lender to a prospective borrower when a mortgage application has been approved. It will set out the terms and conditions of the loan, however if you have any noteworthy changes in circumstances before the loan is completed, the lender can change these conditions.
- Mortgagee
The financial institution lending the funds secured on a property.
- Mortgagor
The person taking out the mortgage.
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n
- Negative Equity
If the value of your home falls below the amount of the loan taken out to purchase it, you are in a position of ‘negative equity’.
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o
- Overpayment
Paying more than the required amount to your mortgage lender. If you regularly make overpayments, and especially if your interest is calculated on a daily or monthly basis, you will save money on interest charges and will reduce the term of your mortgage. However, some lenders limit the amount you are allowed to overpay.
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r
- Remortgage
Changing your mortgage without moving property.
- Retention
If a lender withholds some of the mortgage money until certain repairs have been carried out, the amount held back is known as ‘retention’.
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s
- Search fee
A fee charged for checking with the local authority details of any plans that may affect the value of the house.
- Security
The property being bought with the mortgage is the lender’s ‘security’ for the loan. The lender has rights over the property until the loan is paid off, which means that if the mortgage payments are not kept up to date, the lender can repossess the property and sell it to recover the debt.
- Self-certification
Anyone self-employed would usually have to present three years worth of trading accounts to get a mortgage, but self-certification mortgages allow you to state what your likely income will be rather than having to provide evidence. You may still be asked to have an accountant back up your statement, and usually will need to pay a higher deposit.
- Stamp duty
A government tax that has to be paid on houses. This will vary depending on the purchase price.
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t
- Tenure
A term for the type of ownership of a house e.g. leasehold, freehold.
- Term
The length of time over which a mortgage is to be repaid.
- Title
The legal right to ownership of a house, as shown in the Title Deeds.
- Tracker mortgages
These mortgages have a variable rate which is linked to the Bank of England base rate.
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v
- Valuation
This is just a basic valuation of the property carried out by the lender to ensure that the property is suitable for them to lend on. It will not give you information on any structural details of the property.
- Variable rate mortgages
A lender sets it’s own standard interest rate, and this will move up and down in relation to general movements in interest rates in the wider economy.
- Vendor
The person selling the house.
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