Jargon Buster
Money & Mortgages has taken care in providing this Jargon Buster, but it is provided purely for information purposes only. Money & Mortgages can not be held responsible for any omissions or inaccuracies in the Jargon Buster and you must make sure you have taken independent advice on any of the topics mentioned.
A
Accident, Sickness and Unemployment cover
A type of insurance policy which pays your monthly mortgage payment for up to 12 months if you become ill, unemployed or have an accident.
Agreement in principle
An indication of the likely outcome of a loan application. This is not a formal offer but includes a credit check with a credit reference agency and an assessment of your ability to repay the loan amount requested.
Annual Percentage Rate (APR)
This is the total cost of the loan in terms of a yearly percentage of the amount you borrow, taking into account interest payments, repayment of capital, all costs, arrangement fees, and the like, based on projections for the payments applicable during the term of a mortgage expressed as a rate of interest.
Arrangement Fees
Charged to arrange a loan on certain products. Usually applied to loans where a special interest rate applies e.g. fixed or capped rates.
B
Base Rate Tracker
A form of variable rate mortgage which follows the Bank of England rate. Lenders usually add a margin onto the Bank of England rate, for example bank base rate + 0.14%.
Buy To Let
A mortgage used to buy property which is to be used solely for the purposes of renting out to a third party.
C
Capped Rate Mortgage
A loan where a maximum rate of interest is set at the start of the mortgage. During the capped rate period the interest rate can fall below the capped rate but will never rise above it.
Capital Repayment
There are 2 ways of repaying a mortgage - capital repayment or interest only. With a capital repayment mortgage, the capital and interest elements of the loan are paid off with each monthly instalment so that the balance reduces over time. At the end of the mortgage term the balance will be nil providing that payments have been maintained throughout the term.
Capital & Interest
Another term for capital repayment
Completion
This is the moment you become the legal owner of a property.
Contract
The document describing the agreement under which the property will change hands.
Conveyancing
The legal work involved in buying and selling properties.
D
Daily Interest
The interest on a mortgage balance is calculated on a daily basis rather than on an annual basis.
Decision in Principle
Refer to 'Agreement in Principle' (above)
Deposit
A sum of money put down by the buyer to secure the mortgage loan when contracts are exchanged. This is normally 5 - 10% of the value of the property, but may vary.
E
Early repayment charge
A charge which is payable on certain mortgage products if the borrower repays the mortgage or changes to a different mortgage before the end of an agreed period. Early repayment charges may also be charged if the borrower makes large overpayments to the mortgage during such period.
Exchange of contracts
This is the point at which buyer and seller have legally committed themselves to a deal.
F
Fixed rate Mortgage
An interest rate that is fixed for an agreed length of time. This rate will not change, even if the variable mortgage rate does.
Flexible mortgage
Allows the borrower to tailor make their payments to suit their financial circumstances. It may allow overpayments, lump sum payments, underpayments, payment holidays and draw-downs.
Freehold
The ownership of a property and the land it stands on.
Full Structural Survey
This is carried out usually on older properties or those of unusual construction and provides detailed information on the structural condition of the property, including walls, roof, foundations, plumbing, joinery, wiring, drains and garden.
G
Gazumping
The buyer's nightmare. After you've agreed a price for the property, the seller accepts a higher offer from another buyer.
Ground rent
If you own a leasehold property you'll normally have to pay a small annual ground rent to a freeholder.
H
Higher Lending Charge
Insurance a lender takes out for their own benefit which you may be required to pay for when you ask for a mortgage above a set Loan-to-Value (LTV), usually 75 per cent or 80 per cent. If you default on your mortgage and are unable to repay it from other money or assets or from the sales proceeds, the lender may subsequently claim on the insurer. Some lenders will pay the HLC on your behalf, usually up to a maximum LTV of 90 per cent. In most cases this fee can be added to the loan amount.
NOTE: The policy doesn't indemnify the borrower and the lender and/or the insurer are still within their rights to approach the borrower for any losses.
Home buyers report
This does not offer the level of detail included in a full structural survey, however, it provides basic information to the buyer on the structural condition of the property and is a more detailed survey than the basic mortgage lender's valuation.
I
Interest Only Mortgage
This is where you repay only the interest on your loan to the mortgage provider. You will need to save the money to repay the capital at the end of the loan period by investing in an ISA or other similar investment.
IFAs
Stands for Independent Financial Adviser. These advisors should be able to offer you the full range of products from all of the financial product providers or from a panel of providers that they believe to be the best. They can be one man bands up to multi-national companies. IFAs should carry out fact finds on you in order to help them recommend the best courses of action for your finances
ISA
An ISA is an Individual Savings Account, which is a tax-efficient method of owning shares, building up a cash savings account or a life assurance policy. You can use an ISA to repay the capital sum on an interest only mortgage.
J
Joint Application
Mortgage application involving more than one person as the borrower
K
L
Land registry
The government body that records land ownership in England and Wales and transfers ownership from one person to another.
Leasehold
Ownership of the property is for a fixed term, usually 125 or 999 years. The property is owned by a landlord or freeholder. The buyer will buy the lease and pay ground rent and service charges to the landlord or freeholder.
M
Mortgage Payment Protection Insurance
Insurance that will cover your mortgage payments for an agreed amount of time if you are unable to work through illness or injury.
N
Negative Equity
Where a mortgage balance is greater than the value of the property
O
Offer
A formal document approving the mortgage you have requested and detailing the terms and conditions that will apply.
P
Part and Part
A generic phrase referring to a loan, part of which is interest only (i.e. the capital never declines) with the remaining part being repaid under a capital & interest arrangement.
Payment Break
An option that allows you to stop making mortgage payments for normally up to 6 months. Any payment break is usually only allowed upto the amount of already made overpayments
Pension Plan Mortgage
A type of interest only mortgage where the loan is designed to be repaid by a lump sum from a pension plan when you retire.
Purchase Price
This is the amount the buyer offers to pay for a property.
Q
R
Remortgage
A remortgage is when you decide to switch your existing mortgage without actually moving house. Normally this involves redeeming an existing loan on the property. You may well want to remortgage if you are looking to raise extra cash or review your repayments.
Repayment Mortgage
Also referred to as Capital & Interest, this is where where you repay both the money you borrowed and the interest on the loan direct to the lender. The borrower will therefore see the balance reducing as time goes on and guarantees that the mortgage will be repaid at the end of the term providing that payments have been maintained throughout the term.
S
Solicitor/Licensed Conveyancer
The legal expert you will appoint to handle all the documentation for the sale or purchase of your property.
Stamp Duty
A Government tax the buyer pays. A one per cent tax is levied on properties costing over £125,000 rising to three per cent for properties above £250,000 and four per cent above £500,000. Some areas are exempt, for futher information see: www.hmrc.gov.uk
Standard Variable Rate (SVR)
The standard variable interest rate quoted by all mortgage lenders which normally varies with the Bank of England base rate. All discounted rates are based on this Mortgage Rate.
Surveyor/Valuer
The person instructed by the mortgage lender to carry out a valuation of your property.
T
Title deeds
These show who owns the property and give general details of any other legal matters, such as restrictions in use of the property and rights of way.
Total Amount Payable (TAP)
The total cost of repaying a mortgage over the loan period, including the initial money borrowed, interest charges, etc.
Transfer Deed
Purchase document which transfers ownership from the seller to the buyer.
U
Underwriting
The process by which the ability of a prospective borrower to repay a loan is assessed (this is also the name of the department that undertakes this work).
V
Valuation
A brief inspection of a property for mortgage purposes confirming the suitability of a property to secure money against and its value. Whilst the borrower may be given a copy of the valuation this is only a limited form of inspection and should not be relied upon on when deciding whether to purchase a property. Purchasers should be advised to obtain either a Homebuyers report or a building or structural survey before proceeding with a purchase.
Variable interest rate
Interest rates which can go up or down in line with general interest rates.