Mortgage Jargon Buster (A-Z)
Baffled by mortgage-jargon? Use this comprehensive dictionary of mortgage terminology to help sort your ERCs from your LTVs. But remember, this is just a guide, and if your mortgage adviser or bank uses terms you don't understand, make sure you ask them to explain.
Agreement in principle (AIP)
A document from a mortgage lender confirming that you will be able to borrow a certain amount. You can use this to prove to a seller that you can afford to buy their property. Sometimes known as a Mortgage Certificate.
The process of paying off a debt (mortgage) over time through regular (monthly) payments. A portion of each payment is for interest while the remaining amount is applied towards the principal balance. The percentage of interest versus principal in each payment is determined in an amortization schedule.
Amortisation table / schedule
A table that provides a breakdown of the schedule of payments from the loan's first required payment to the loan's final payment. It details the amount of principal and the amount of interest paid each month. The amortization schedule is one of the most important, yet overlooked, documents involved in the mortgage process, as it shows the true cost.
Annual percentage rate: the overall cost of a mortgage, including the interest and fees. It assumes you will have the mortgage for the whole term, so may not be a useful way to compare deals.
A set-up fee for your mortgage. Most mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the whole mortgage term.
If you go into arrears, it means you have 'defaulted' at least once on your mortgage repayments, ie you have missed a month's payment. Contact your lender as soon as possible if you think you may go into arrears.
Some mortgages are only available direct from the lender, others can be applied for via a broker, via telephone or via the internet. Some mortgage deals are only available to existing customers.
An Automated Valuation Model is an electronic search used by some lenders to establish the value of your property based on recent local sales and value trends. This is instant and means that they do not have to send a surveyor to your property. We use an AVM service to value your property.
A rate of interest set by the Bank of England, which tracker mortgages and standard variable rate mortgages usually follow.
A type of mortgage set-up fee.
A person or firm that has the relevant permissions and qualifications for advising on and arranging regulated mortgage contracts, who can help you arrange your mortgage. Brokers are also sometimes referred to as Advisers or Intermediaries.
Insurance that covers you for damage to the structure of your home. A lender will require you to have this in place when you take out a mortgage.
A buy-to-let property is bought with the sole intention of letting it to tenants. Most mortgage lenders offer special buy-to-let mortgage deals for this purpose.
The amount of money you borrow to buy a property. Sometimes known as the Advance.
If your mortgage deal has a capped rate, the interest rate charged by your lender will never exceed the upper 'capped' limit, regardless of increases to the Bank of England base rate.
With this type of mortgage, your lender gives you a certain amount of cash on completion. You should factor this into the total cost of your mortgage over the initial period to decide whether it’s a good deal.
County Court Judgement. These are made against you for non-payment of debt, and could make it harder for you to get a mortgage.
If your mortgage deal has a collar, your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, you'll miss out on the savings that this lower rate would bring. Sometimes known as an Interest rate floor.
The final stage of the house-buying process, which comes after exchange of contracts. The sale must proceed after Exchange, but Completion occurs when the property's agreed sale price (less any deposit already paid) safely reaches the seller's bank account.
Insurance cover which protects the personal belongings your home contains. In the case of rented accommodation, the landlord is responsible for insuring those contents which he owns, but not those owned by his tenants.
The legal process you must go through when you buy or sell property. This can be done by a solicitor or licensed conveyancer.
Credit Reference Agency
When assessing your application, a mortgage lender will study your credit records. These records are held centrally by credit reference agencies, and contain information from many different aspects of your life. Also known as Credit Report agencies.
Dashly is the UK’s first ‘always on’ mortgage platform that alerts homeowners when they could save money by switching to a different mortgage. All you need to do is sign up and switch off, meaning once registered, customers will only hear from Dashly if it has identified an opportunity to save money, taking into account all fees and early repayment charges.
The formal written document which lists exactly who owns a property and enables transfer of a property's ownership from seller to buyer. A mortgage lender will record details of their mortgage on these deeds (which means they can take ownership of the property if you default on the loan payments).
This is the amount you are required to put down yourself towards the cost of the property. Minimum deposit amounts will vary based on the type of mortgage you are looking. For example, the value of the property, the property construction, mortgage lender and product type, to name a few. Rest assured, that your mortgage adviser will recommend the best possible product for you, taking into account your personal circumstances and preferences.
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). For example, if the lender has an SVR of 5.5% and the discount is 1%, you will pay 4.5%.
Early repayment charges (ERCs)
Penalty fees you have to pay if you want to leave your mortgage during a specified period, usually the period of the initial deal.
A term used by lenders to describe potential borrowers' working arrangements. Self-employed applicants are sometimes seen as a greater risk than employees are. But many specialist lenders and mortgages have emerged in recent years designed specially for different types of employment status.
A form of interest-only mortgage where you also pay money into a type of investment called an endowment to pay off the mortgage at the end of the term.
The amount of the property that you own outright, ie your deposit plus the capital you've paid off on your mortgage.
Equity release scheme
An equity release scheme allows older homeowners to release the cash tied up in their property. There are two types: lifetime mortgages and home-reversion schemes. These schemes should only be taken out after getting independent financial advice. Read more about equity release schemes.
Or Exchange of contracts are when the terms of a property's purchase become legally binding for both parties when contracts are exchanged. The buyer is then committed to buying, and the seller to selling. As a buyer, you should normally ensure that you are covered by building insurance from this date, because even if the property were damaged badly, you would still have to buy it.
This is a closure administration fee payable to service providers when you fully repay your mortgage. These fee’s are typically under £100 and are not considered in our comparison.
Family offset mortgage
Used by family members (usually parents) who want to help first-time buyers get onto the property ladder. Your savings are balanced against your child (or family member)'s debt, so the amount they owe and pay in interest is reduced.
First time buyer
A person buying their first property.
The mortgage interest rate stays the same for the initial period of the deal, which can be anything from one to 10 years. This means you can be sure of exactly what you will be paying on your mortgage each month, as your rate won't go up - or down - with the Bank of England base rate.
A flexible mortgage deal allows you to overpay, underpay or even take a payment holiday from your mortgage. This can help you pay off your mortgage early and save money on interest, but flexible mortgages are usually more expensive than conventional ones.
You own the building and the land it stands on.
When an offer has been accepted on a property but a different buyer then makes a higher offer, which the seller accepts.
Before tax or deductions.
A third party who agrees to meet the monthly mortgage repayments if you are unable to. This is most common with first-time buyers, and the guarantor is usually their parent or guardian.
Help to Buy
The government has launched a number of different Help to Buy schemes, including equity loans, mortgage guarantees, Isas and specific schemes for Scotland and Wales. They all aim to make home-buying easier.
Help To Buy ISA
A tax-free savings account, into which the government pays first-time buyers a cash bonus towards the purchase of a property. The government will input 25% of what you save up to £3k per financial year. For further details please see the government web site at: https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-isa
Higher lending charge (HLC)
This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage. HLC's are not applicable on every mortgage, but your adviser will confirm to you if it is payable on the mortgage recommended to you.
House Price Index (HPI)
The UK House Price Index is an official statistic published monthly by GOV.UK and the Land Registry that shows changes in the value of residential properties in England, Scotland, Wales and Northern Ireland. This is used to give you an idea of the current value of your home and provide general information regarding the property market.
To help you with the cost of moving home or remortgaging some of mortgage deals come with additional features such as cashback, free standard legal service or free valuation. These are detailed on the brochure details of each deal.
With an interest only mortgage you will only pay the interest due on the mortgage and not any of the capital element each month. Therefore mortgage lenders will require you to have a satisfactory repayment vehicle in place to repay the mortgage in full at the end of the term, for example sale of property or savings.
Interest rate (R)
This is the percentage rate at which the lender calculates the interest they charge the borrower for the mortgage. Interest rates are expressed as annual rates, so the monthly interest rate that is used in the amortisation schedule is R/12 = r.
e.g. if an interest rate (R) is 3.60% the monthly rate (r) is 0.3%.
A mortgage taken out by two or more people. This might be used if you buy a house with a partner or friend, and can also be used by parents who want to help their children buy a property.
The official body responsible for maintaining details of property ownership.
You own the building but not the land it stands on, and only for a certain period (anything up to 999 years). You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. Find out more about buying a leasehold property.
LIBOR (London Inter-Bank Offered Rate)
The interest rate at which leading banks lend to one another. Sometimes used as an alternative to base rate in setting the benchmark for a tracker mortgage. There are separate LIBOR rates for different periods up to a year but either "1" or "3" months LIBOR is what is normally used in setting mortgage rates.
See 'equity release schemes'.
The size of your mortgage as a percentage of the property’s value. The cheapest deals tend to be available to people who are borrowing 60% or less. An example of a Loan to Value calculation would be:
Property Value = £500,000
Loan Amount = £300,00
Loan-To-Value = 60%
Lump Sum Payment
When you make one-off payment to reduce the outstanding balance on your mortgage. There is a limit to how much you can repay in any 12m period without incurring an early repayment charge - See overpayment allowance.
The amount you pay your mortgage lender each month. If you're on a repayment mortgage (the most common kind), the payment will cover a percentage of your mortgage plus interest.
A loan which is secured against your property.
Mortgage agreement in principle (AIP)
See 'agreement in principle'.
A formal contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender has if the borrower fails to make a repayment.
A mortgage can sometimes be made up of multiple parts each with different terms or repayment types. The most common use of parts is when a mortgage has both a capital repayment and an interest only part. Other examples could be when one portion of the mortgage is taken over 25 years and another over 10 years.
Mortgage payment protection insurance (MPPI)
Insurance that covers your mortgage, usually for a year, if you are unable to work due to accident, sickness or unemployment. It is also know as ASU insurance.
A mortgage step is a change in the interest rate during the life of the mortgage. Most mortgages have have an initial rate and then a standard variable rate, which is 2 steps. But if an SVR changed this creates a new step in the interest rate and amortisation table.
The amount of time you are taking the mortgage out for – 25 years, for example. The maximum term is usually 40 years, and the minimum term for most mortgages is 5 years. Some lenders may go below a 5 year term, but your adviser will be able to advise you on this.
When the value of your home falls to a level that is below the amount remaining on your mortgage.
After tax or deductions have been deducted.
An offset mortgage links your mortgage with your savings and, sometimes, your current account. Your credit balances are offset against your mortgage debt so you only pay interest on the difference, while also paying off the capital.
The total amount of the mortgage that is currently outstanding, inclusive of any repayable interest. As you continue to make repayments, your mortgage balance will get smaller and, as long as you keep up these repayments, your mortgage will be repaid at the end of the term.
The overpayment allowance is the amount you are allowed to pay off your mortgage (or overpay) in each 12 month period, without incurring any Early Repayment Charges. This varies between different mortgage deals so you should check the individual details of our mortgage deals to find out what the allowance is.
Part and part mortgage
This is where your mortgage repayment type is a combination of repayment and interest only. At the end of your mortgage term, the remaining balance must be repaid.
A short break from regular mortgage repayments, sometimes offered with flexible mortgages. This can sometimes be a useful feature for self-employed people or others with irregular income.
A portable mortgage allows you to transfer your borrowing from one property to another if you move, without paying arrangement fees.
The total amount paid by the mortgage lender to a mortgage adviser/ intermediary, whether directly or indirectly, in connection with providing applications from customers to enter into regulated mortgage contracts with the mortgage lender.
How much the property is worth at any given point, most importantly at the times of buying and selling. Many percentages are worked out from this so, for example, if a 12% deposit is required for a house with a property value of £120,000, the buyer would need to put down a deposit of £14,400.
For insurance purposes: the cost of rebuilding your home if it is destroyed.
The point where your mortgage has been repaid in full.
When you change your mortgage without moving house. You can do this to save money, to change to a different type of mortgage or to release equity from your home.
You pay off the mortgage interest and part of the capital of your loan each month. Unless you miss any repayments, you are guaranteed to have paid off the mortgage by the end of the term.
Required by lenders if you take out an interest-only mortgage, this is the means by which you're intending to pay off your mortgage at the end of the term - for example, another property or sale of property (either main residence or another property you own), or a stocks and shares portfolio or any savings you may have..
If a mortgage holder falls behind on payments or cannot pay off the debt of a mortgage, the lender has the right to take the property away from the borrower and sell it on in order to get their money back.
Right to Buy scheme
Originally intended to enable tenants of council houses to buy the homes they lived in, this is now being opened up to housing association tenants too.
When you take a mortgage out, your property is used as security. This means that if you do not keep up with your monthly repayments, the lender has the right to repossess your property. This is not limited to mortgages as any form of borrowing may be secured against your home or possessions. The loan is hence said to be "secured" on the property.
The fee paid to a managing agent for the ongoing maintenance of a leasehold property.
You buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association.
Stamp duty land tax (SDLT) is payable when you buy a property for more than £125,000 for the most up to date details please see the government web site. https://www.gov.uk/stamp-duty-land-tax
Standard variable rate (SVR)
The default mortgage interest rate that your lender will charge after your initial mortgage deal period ends. This could be higher or lower than your original rate. As the name suggests the SVR is a variable rate set by the lender, and can therefore be higher or lower than a mortgage deal rate - so it's worth exploring your options when the end date on a mortgage deal is approaching.
Lenders can increase SVRs whenever they like, with or without a base rate rise, but they’re almost certain to all increase their SVRs when as and when the bank of England base rate does rise.
Where the interest rate you pay increases (or decreases) over a set period. For example, you may pay 2% in the first year, then 3% the second year, and so on.
The obvious advantage to stepped mortgages is being able to keep your initial payments low, which can help with budgeting when moving in to a new home. And because you know in advance when payments will rise there shouldn’t be any surprises later down the line. Stepped mortgages can either be variable or fixed. Borrowers with variable rate stepped mortgages linked to their lender’s standard variable rate (SVR) might find that not only does the rate go up each year, but it can increase at others times too.
Sub-prime or credit impaired mortgage
A sub-prime, or credit impaired mortgage or mortgage lender, have products geared towards people who have had credit problems in the past. Many lenders will have strict criteria around applicants who have suffered from credit issues in the past, but your mortgage adviser will advise you accordingly on the best course of action if you have had some credit issues.
Subject to contract (STC)
This is where an offer has been accepted on a property, but a formal contact has not yet been completed.
This is the period during which you are 'locked in' to your mortgage deal. You'll have to pay an early repayment charge if you leave your mortgage during this period. Avoid mortgages that tie you in after your introductory rate has ended.
The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it.
A property that you own outright where there are no loans or borrowings secured on it.
Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you're paying for it. You should always have your own survey done too, to check for structural problems.
The interest rate on your mortgage can go up or down according to your lender’s standard variable rate.
The seller of the property.