Mortgages jargon buster
To make things a bit simpler, here is a list explaining the most common terms you'll be faced with when taking out a mortgage.
- Additional borrowing: Sometimes called a further advance, this is when you borrow more money against the same property, increasing your total mortgage amount.
- Affordability: Your ability to make your mortgage payments and repay the money borrowed. Mortgage lenders take your earnings and outgoings into account when they assess your affordability. This determines whether the loan is affordable based on your income, credit commitments and household expenditure.
- Annual percentage rate (APR): This is the total cost of a mortgage expressed as an interest rate. It takes into account the interest you pay and some other charges, such as booking fees and product fees. It's the best way to compare the cost of different mortgages.
- Arrears: Payments that you've missed when you fall behind with your mortgage.
- Assets: Property or items owned by a person.
- Bank of England base rate: This is the base rate of interest set by the Bank of England. The rate moves up and down from time to time.
- Bankruptcy: When your unsecured debts are higher than the value of your assets, and you are legally declared unable to repay your debts.
- Booking fee: A non-refundable fee you may have to pay to reserve your mortgage funds at a particular interest rate. Details of any fees payable will be found on your Mortgage Illustration.
- Capital and interest repayment mortgage: Sometimes called a repayment mortgage, with this type of mortgage, part of your monthly payment is used to repay interest on the amount you owe, and the rest is used to repay the mortgage balance.
- Capped rate mortgage: With this kind of mortgage, your mortgage payments will be variable but they will never exceed the capped limit set by your provider.
- CHAPS payment: Clearing House Automated Payment System (CHAPS) is an electronic bank-to-bank technology that enables same-day payments to be made within the UK, provided the funds are released before 3pm.
- Completion of your mortgage: When your mortgage paperwork has been completed and the mortgage funds are released.
- Conveyancer: A person who deals with the legal requirements of buying a house or remortgaging.
- Credit search: An examination of the information that a credit reference agency holds about a person. This could include information about a person's payment history for credit cards, loans and other credit agreements, as well as details of court judgments, bankruptcies and inclusion on the electoral roll.
- Decision in principle: An indication from a lender that they may be able to offer you a mortgage.
- Defaulting: This occurs when you cannot keep up with your minimum required monthly mortgage repayments and you go into arrears on your mortgage.
- Deposit: The amount of money you need to put towards the purchase of a property.
- Early repayment charge (ERC): A charge you might have to pay if you redeem some or all of your mortgage during the initial rate period.
- Enquiry fee: The fee paid by your new lender when they request mortgage details from your current or previous lender. Enquiries are only made with the written consent of the customer.
- Equity: The value of your property over and above the amount of your mortgage. For example, if your home is worth £100,000 and your mortgage is £70,000, your equity will be £30,000.
- Estimated property value: Provided by the customer at the outset in order to determine how much the mortgage provider will lend. If you proceed with an application the mortgage provider may require a mortgage valuation to be completed on the property to confirm its actual value.
- First-time buyer: A person who is buying their first home.
- Fixed rate: The rate of interest charged on a fixed rate mortgage. The interest rate is fixed for a set period.
- Floor rate: With this kind of mortgage, your mortgage payments will be variable but they will never drop below a minimum rate set by your provider.
- Further advance: Additional borrowing from your mortgage lender. This is when you borrow more money against the same property, increasing your total mortgage amount.
- Home mover: Someone who is selling one property to buy another.
- Illustration: The personalised illustration of the features, cost and associated fees and expenses of your mortgage that we send to you before you make an application.
- Initial rate period: The period of time that a fixed or tracker rate of interest applies to a new mortgage. At the end of the initial rate period, the rate automatically reverts to the standard variable rate.
- Interest calculated daily: When the interest due on the outstanding mortgage balance is calculated every day, rather than at the end of the week, month or year.
- Interest rate: The rate used to calculate how much interest needs to be paid, expressed as a percentage.
- Interest type: Mortgage interest can be fixed, where it stays the same for an agreed period, or variable, where it can go up and down.
- Loan to value (LTV): The sum of your mortgage shown as a percentage of the property's value or purchase price - whichever is lower. For example, if your property value (as appropriate) was £100,000 and your mortgage was £70,000, your LTV would be 70 percent.
- Lump sum payment: A one-off payment you make to reduce the amount you owe on your mortgage.
- Monthly mortgage payment: The payment you make every month to your lender.
- Mortgage offer: A document sent by your lender offering you a new mortgage. This forms part of a legally binding contract.
- Mortgage term: The length of time you are paying back your mortgage for.
- New build property: New build is defined as properties which are new, newly converted or previously unoccupied built within the last two years. We do not lend on self-build projects.
- Negative equity: When the amount you owe your mortgage lender is higher than the value of your home, making it difficult to move house.
- Offer in principle: An offer from a lender to give you a mortgage, subject to the property meeting their criteria and the information provided by you being satisfactory.
- Outstanding balance: The amount you owe on your mortgage.
- Overpayment: Making an extra lump sum or regular payment to your mortgage to reduce the amount you owe. You can use overpayments to pay off your mortgage early or reduce your monthly payments. An early repayment charge may apply if you overpay by more than the agreed limit during the initial rate period.
- Payment holiday: A period of one month when you don't make a mortgage payment. This has to be agreed in advance with your lender.
- Portable mortgage: A mortgage you can take with you when you move home.
- Product expiry: The date when a mortgage product is no longer available.
- Product fee: A fee you may have to pay for the work carried out by the lender for arranging your mortgage for you. You can usually add this fee on to your mortgage amount, but this will increase your monthly payments.
- Redemption: When you pay off your mortgage in full.
- Redemption administration fee: A fee you may have to pay when you fully repay your mortgage, or when you switch your mortgage to another lender. The charge covers the work carried out by the lender for redeeming and closing your mortgage.
- Redemption statement: A statement that shows how much you need to pay to redeem your mortgage on a particular date.
- Referral: When additional information or answers to specific questions are needed before a lender decides whether or not to offer you a mortgage.
- Remortgage: When you switch your mortgage for the same property from one lender to another.
- Repossession: The legal process whereby a lender takes over a property and sells it to pay off the amount owing under the mortgage.
- Stamp duty: The tax you have to pay on a property if you buy a house worth £125,000 or more. The amount you pay will depend on the value of your home. In Scotland this is known as the land and buildings transaction tax and applies to properties costing more than £145,000.
- Standard variable rate (SVR): The interest rate set by the lender that you usually pay when you come to the end of a fixed or tracker rate period. The SVR will go up or down from time to time - for instance to reflect a change in base rate.
- Switching: When you change from one mortgage product to another with the same lender, without moving home.
- Switch and fix: A mortgage that gives you the option to switch from a tracker mortgage to a fixed rate mortgage during your initial rate period without having to pay an early repayment charge.
- Survey: An investigation into the condition of the house you're looking to buy.
- Telegraphic transfer fee/CHAPS Fee: A fee charged for sending funds electronically.
- Tie-in period: The period during which you are tied into your mortgage. If you decide to move your mortgage elsewhere within this period, you may have to pay an early repayment charge.
- Tracker rate: The rate of interest charged on a tracker mortgage. This is usually the Bank of England base rate plus a set percentage.
- Transfer of equity: The transfer of a share of ownership in a property. This can involve a person being added or removed as an owner of a property.
- Underwriting: The process lenders use to decide if someone is eligible for a mortgage, and how much they will lend.
- Valuation: A property inspection by a surveyor or valuer, carried out to determine the property's value. The report produced by the valuer is sometimes also called a valuation or valuation report.
- Valuation administration fee: The fee charged by a lender to cover the work they need to do after they receive the valuation.
- Valuation fee: The fee typically charged by a surveyor or a valuer to value a property. This fee can include the valuation administration fee.
- Variable rate mortgage: With this kind of mortgage, interest rates can rise and fall according to your lender's standard variable rate.