The mortgage world is packed with new words and phrases that first time buyers aren’t familiar with. These terms are useful for anyone looking to get a mortgage on a property.
This glossary isn’t a comprehensive list, but it’s enough to get started. And if there is anything you still don’t quite understand, as mortgage brokers, we’re always on hand to clearly explain anything you don’t understand. Just ask us.
A | B | C | D | E | F | G | H | I | K | L | M | N | O | P | R | S | T | V
Agreement in Principle
Also called Mortgage in Principle or Decision in Principle. This is a statement provided by lenders to confirm how much they will lend to you once conducting a credit search, it’s needed by estate agents before finalising your home purchase or offer. It provides an official estimate you can use during the home buying process.
APR
APR stands for Annual Percentage Rate, which is the rate you’re charged per year for the sum you borrowed, including any fees.
Arrangement fee
An arrangement fee,sometimes referred as a lender arrangement fee is a fee lenders charge to offer a lower rate for example £999 mostly, they can be added to the loan and are factored into the overall cost of your mortgage deal.
Arrears
If you’re in arrears with your mortgage, it means you have missed at least one payment. Continually being in arrears can put your home at risk.
Base rate
Also known as the ‘bank rate’ (BBR), the base rate is the interest set by the Bank of England. The Bank of England charges banks and lenders when they borrow money.
Certain mortgage deals—trackers—are directly affected by the base rate. Lenders’ Standard Variable Rates (SVRs) may be adjusted as the Bank of England changes the base rate.
Booking fee
This is an upfront cost to reserve your loan during the mortgage application process.
Buy-to-let
Buy-to-let properties are bought for renting to tenants as opposed to buying a home to live in yourself. Mortgage lenders offer specific buy-to-let mortgages to suit this type of buyers; often at a higher rate than standard mortgages.
Capital
This is the amount you borrow to buy a property through a mortgage lender.
Contents insurance
An insurance policy to protect your belongings inside your home, separate from buildings insurance.
Conveyancing
Often carried out by a property solicitor, conveyancing is the legal process of transferring ownership from seller to buyer. Sometimes people refer to using a ‘solicitor’ they mean a conveyancer, they can also be a solicitor though.
Credit score
Your credit score is an indicator to lenders about your suitability to borrow money, whether that’s for a mortgage, credit card, or mobile phone contract. A low credit score is often a sign of previously missed payments, defaults or CCJ’s.
Debt to income ratio (DTI)
The DTI is something lenders look at how much debt you have in relation to your income. It helps lenders determine how much you can realistically borrow for a mortgage.
Deposit
A sum you provide when you get a mortgage. The size of your deposit depends on factors, such as the type of mortgage and property and your financial circumstances. Deposits tend to be between 5% and 40% of the property value.
Early Repayment Charge (ERC)
A charge you may be liable for if you repay part or all of your mortgage off during its fixed period. It’s sometimes applied if you transfer to another rate / product before the end of the term. The rate of this charge depends on the mortgage lender and length of the fixed term.
Equity
Equity refers to the total value of a property, excluding the sum you owe on the mortgage. Also called Home Equity or Mortgage Equity. Essentially it’s the part of the property that you own.
Exit fee
A fee sometimes payable once you’ve fully repaid your mortgage. It will be included in your Key Facts Illustration (see the definition below). Not all lenders request an exit fee.
First-time buyer (FTB)
You’re a first-time buyer if the property you’re getting a mortgage for is your first residential property.
Fixed-rate mortgage
A mortgage deal in which the interest rate for the mortgage remains the same, provided you keep up with your repayments. Fixed-rate mortgages are for a ‘fixed’ amount of time, normally between two and five years.
Flexible mortgage
A type of mortgage that allows for overpayments, payment holidays, and borrowing. Typically used by those with irregular incomes.
Guarantor
A guarantor is someone (often a relative or close friend) who legally agrees to make your mortgage payments on your behalf if you find yourself unable or unwilling to cover payments.
Hard credit check
A thorough assessment of your lending history for lenders to check your suitability for credit. Often used for utility companies or a monthly phone contract. Hard credit checks are noted on your credit file. Mortgage Lenders tend to run Hard checks at full mortgage application.
Higher lending charge
A fee occasionally charged by lenders if you borrow a high percentage of the value of the house (usually 90% or higher). These are rare nowadays.
Interest-only mortgage
An interest-only mortgage means the borrower (you) only pays the interest portion of the total sum borrowed. It means your mortgage balance doesn’t reduce and you won’t build equity in the property. The full mortgage amount is still due at the end of the mortgage term. Most common on buy to let mortgages.
Interest rate type
The interest you pay on your mortgage is either variable or fixed at a set rate for a set time period.
Key facts illustration (KFI)
A document that sets out all the details of a mortgage you need to know.
Loan to Value (LTV)
Usually provided as a percentage, the LTV is the proportion of the property price you borrow when you get a mortgage. For example, if the property is valued at £100,000 and you borrow £80,000, the LTV is 80%.
Mortgage deed
A legally binding document confirming you and the lender have agreed to go ahead with the mortgage offer.
Mortgage term
The length of time you agree to pay off the mortgage. Typically, this is 25 years, but it can be longer or shorter.
Negative equity
If you owe the mortgage lender more than the value of your property, then you have negative equity.
New-build property
A new-build property is:
- A building that has been built in the last 24 months, including property bought directly from a builder or developer, or
- A property yet to be occupied for the first time, or
- A house or flat created through the conversion of an existing building into separate self-contained properties (which have not been previously occupied in its present structure).
Offset mortgage
Type of mortgage that allows borrowers to use their savings to ‘offset’ their mortgage debt. For example, if you borrowed £80,000 through an offset mortgage and have £20,000 in a savings account, you only pay interest on £60,000 of the mortgage.
Overpayments
An overpayment is any payment toward your mortgage that you make over the agreed amount. Lenders typically allow up to 10% overpayments per year on a mortgage without resulting in an Early Repayment Charge—even if you’re tied into a deal.
Payment holidays
A short break from your regular mortgage repayments.
Redemption
Also known as a Redemption Statement. This is when you pay off your mortgage with your current lender by selling your property or remortgaging to another lender.
Remortgaging
This is the process of arranging a new mortgage on your current home. There are many reasons homeowners remortgage their property. For example, to save money, to lower monthly repayments, or to fund renovations. Remortgages typically involve moving to a different lender.
Repayment mortgage
The typical mortgage method, in which you make payments towards the interest accrued, and the capital borrowed, with the goal of no longer owing anything by the end of your mortgage term.
Repossession
Repossession occurs when a borrower has defaulted on their mortgage (e.g. missed a payment). The court has awarded possession of the property back to the lender to recoup the outstanding mortgage balance and any other financial losses.
Secured loan
A loan that is secured against your property.
Self-build mortgage
A type of mortgage for people who want to build their own home rather than buy a pre-built property.
Shared ownership
A government-backed scheme helping people buy a property. You own a share of the property, typically between 25% and 75%. Rent is paid on the remaining proportion.
Soft credit check
A type of background check on your lending history, which can be run without your permission. It doesn’t affect your credit score or any future credit applications, unlike a hard credit check. Most decision in principle credit checks are soft footprint.
Tracker mortgage
A type of mortgage with a variable rate. The interest rate tracks or follows the Bank of England base rate. The interest you pay on your mortgage (and therefore, the sum of your monthly repayments) depends on how the base rate changes.
Valuation report
A basic inspection of a property to determine its value. Lenders carry this out as part of the mortgage application but only do it for their own purposes and often don’t issue reports to applicants
Now that you’ve got this handy list of mortgage terminology definitions, you’ll be better prepared to go ahead with getting a mortgage.
If there’s anything you’d like more explanation about, contact us. With decades of experience between the team, our mortgage advisers are experts in the industry; we can explain terms in a clear and understandable way.