HomeMortgage Glossary & Terminology

Mortgage Glossary & Terminology Explained

on Friday, 05 August 2011. Posted in Mortgage Types

Accident, Sickness and Unemployment Insurance (ASU):

Or Mortgage Payment Protection Insurance. This is insurance that will pay your mortgage for you in the event that you can’t pay due to unemployment, ill-health or injury.

Adverse Credit:

Adverse credit refers to scenarios where your credit rating has been affected by your financial situation for example if you have ever fallen into mortgage arrears or had CCJs.

Annual Percentage Rate (APR):

APR is the easiest way to compare the rates of different lenders as it refers to the annual cost of the mortgage. (Presented as a percentage rate of the value of the loan)

Arrangement fee:

Or Application or Booking Fee: The cost of signing on with a mortgage lender, arrangement fees are usually in place where the introductory rate of interest offered is low.

Arrears:

Mortgage arrears are payments on your mortgage that have not been paid after they are due.

Bankruptcy:

If a person declares themselves bankrupt they are legally saying that they cannot pay off their debts, including their mortgage. All their assets can be obtained by creditors to attempt to cover the debt.

Base Rate:

Or Bank of England Rate: Base rate refers to interest rate set by the Bank of England’s Monetary policy Committee each month, tracker mortgage directly link to this base rate but all mortgage rates will be affected by it.

Broker Fee:

Or Introducer or Procuration Fee: The fee charged by your mortgage broker who advises and arranges your mortgage.

Buildings and Contents Insurance:

Insurance on your new property and the contents, this is mandatory.

Buy-to-Let mortgage (BTL):

A mortgage that is taken on a property that you intend to rent out to tenants.

Capital and Interest mortgages:

Or repayment mortgage. As opposed to an interest-only mortgage, each month you will pay off the interest and an amount off the capital value of the loan.

Capital Rest Period:

How often a lender calculates how much you owe - this could be daily, monthly or annually - and will determine how much interest you pay in that period.

Capped rate mortgage:

A mortgage that has a fixed upper limit to the interest paid within a pre-agreed period.

Cashback mortgage:

A mortgage where the borrowers receives a lump sum of money upon completion.

Completion:

When the transfer of a house is legally binding, the documentation completed and the necessary funds transferred.

Conveyancing:

The legal process of transferring the ownership of property.

County Court Judgement (CCJ):

CCJs reflect to debt that has been declared in a county court. This may affect your ability to get a mortgage.

Credit Scoring:

Based on your credit history and income, prospective borrowers will be given a credit score that will affect their chances of having their mortgage approved.

Current Account mortgage:

A flexible mortgage that combines the mortgage with the borrower’s current account but essentially enlarging their overdraft facility.

Discounted rate mortgage:

A variable rate mortgage that offers a discounted period of interest within a given time period.

Discounted Tracker rate mortgage:

A tracker mortgage where a further discount is given off the Bank of England’s base rate for a given time period.

Early Repayment Charge (ERC):

(Also known as early redemption fees) Charges for paying off the mortgage before the originally agreed time.

Equity:

The value of the property minus the value of the outstanding mortgage.

Exchange of Contracts:

When the transfer of a property becomes legally binding in England, Wales and Northern Ireland.

Financial Services Authority:

The body that regulates companies offering financial services.

First Charge:

A legal fee that stipulates the mortgage lender takes their cut from the funds after the sale of the property first.

Fixed rate mortgage:

Interest on the money borrowed is charged at a set rate for the given time.

Flexible mortgage:

A mortgage that allows under and over paying without penalty, although specifics will vary depending on the mortgage deal.

Freehold:

A type of ownership of property where the buyer owns the purchase indefinitely (as opposed to leasehold)

Gazumping:

When the prospective buyer of a property is outbid by a higher offer, after their offer had been accepted.

Guarantor:

The person that guarantees they will make mortgage payments if the borrower fails to repay the mortgage.

Higher Lending Charge:

Or Mortgage Indemnity Guarantee and Additional Security Fee: This charge protects the lender in case your mortgage is greater than a percentage of the value of the property. For example if you take out a 90% mortgage, fall into arrears and the property is sold at a loss.

Initial Disclosure Document:

A document setting out the service that will be provided by your lender or mortgage broker in arranging the loan.

Interest Only Mortgages:

When taking out an interest only mortgage the borrower only pays interest. It is assumed the borrower will be able to pay the whole mortgage off through another means at the end of the period (for example personal pensions, ISAs, etc).

Joint Application:

A mortgage that is taken out by multiple borrowers.

Key Facts Illustration:

The crucial points of the mortgage such as terms, repayments and fees, set out before you apply for the mortgage.

Leasehold:

A type of property ownership. A buyer owns the property for a pre-agreed number of years but not the land (as opposed to freehold).

Loan-to-Value:

The proportion of the loan taken out against the deposit put down. The higher loan-to-value, the higher risk the mortgage for the lender which may result in a higher lending charge.

Mortgage Offer:

The written offer of a mortgage, with conditions, presented to the prospective borrower by the lender and valid for usually 6 months.

Mortgage Term:

The time over which you agree to pay back your mortgage loan.

Non-Conforming Jargon:

This refers to the confusing variety of labels that lenders use to describe mortgages that essentially mean the same thing.

Non-Regulated Mortgages:

If a firm has not been regulated by the FSA. This may be the case in a buy-to-let mortgage or when buying property abroad.

Offset Mortgage:

A flexible mortgage in which all the borrower’s accounts (mortgage debt, savings and current account) are aggregated in terms of calculating the interest.

Overpayment:

An unscheduled repayment that is over the pre-agreed rate. This may result in a fee in a non-flexible mortgage.

Remortgage:

Changing or refinancing your mortgage without moving house.

Right to Buy:

The option to buy a property that a tenant has been renting for a number of years. Only applicable to council tenants.

Search:

Searches carried out in the conveyancing process about the property in local authority records.

Second Charge:

After the First Charge, a legal charge may be made by other lenders or on second mortgages.

Secured Loan:

A loan that uses the borrower’s property as capital. Failure to repay a secured loan could result in the repossession of your house.

Shared Ownership:

Buying a property with help from the Housing Association. Usually the homeowner must buy at least 25% of the total house value, the Housing Association would own the other 75%.

Stamp Duty:

A government tax on the buying of a property. Does not apply to first time buyers or properties under a certain value.

Standard Variable Rate:

The rate of interest set by the lender charged to variable rate mortgage customers. It is linked to the Bank of England’s Base Rate but set by the lender.

Structural Survey:

An inspection carried out by a chartered surveyor. Determines if there are any structural problems with the property before purchase.

Survey:

Or Valuation: An inspection carried out by the mortgage lender to ensure that the property is worth the being sold for, and therefore the value of the mortgage being applied for.