Mortgage Glossary

06/12/2017
The mortgage glossary below is aimed at first time buyers and anyone else needing to know about the main factors and variables relevant to the subject of mortgages.

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Glossary of commonly-used mortgage terms


Additional Borrowing

The term used when a customer increases their borrowing to release some of the equity available in their property.

Annual Percentage Rate (APR)

APR stands for the Annual Percentage Rate of charge used to compare loan offers.

Arrangement Fee

The fee charged for the administration involved in arranging the loan.

Arrears

This a legal term for the part of a mortgage debt that is overdue after missing one or more required payments. The amount of the arrears is the amount accrued from the date on which the first missed payment was due. Penalties may also be imposed for missing payments.

Bank of England Base Rate

The Bank of England Base Rate is set by the Bank of England. It is the rate the BoE charges other banks for borrowing from it. It follows that in order to make money, your lender invariably charges you interest at a higher rate than the base rate regardless of non-movement or the direction of movement of the base rate.

Booking Fee

A non-refundable fee charged on some mortgages to secure a particular mortgage deal.

Buy to Let

this is a property bought by a person with the intention of letting it out rather than living in it. Buy to Let property buyers can access Interest Only Mortgages as well as Repayment Mortgages unlike standard residential home buyers.

Capital and Interest Repayment

Your monthly payment covers the interest and also reduces the total balance outstanding.

Completion Fee

A fee to cover the cost of electronically transferring the mortgage funds to the borrower.

Credit Report

A credit report is a record of information about your credit history. It shows how you've handled credit in the past and it allows lenders to assess your level of risk when you apply for credit.

Credit itself is a form of borrowing, meaning you can get something now on the agreement that you will pay back the cost later and you normally have interest payments based on a percentage rate of what you've borrowed to pay off as well. Mortgages and home loans are forms of credit.

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Deposit amount

The value of funds that you are using to purchase the home.

Discount Rate Mortgage

The mortgage interest rate is discounted from the variable rate. When the discount period ends, the mortgage interest rate reverts to the variable rate.

Early Repayment Charges

An Early Repayment Charge (ERC) is a charge you may have to pay if you repay the whole or part of your mortgage, by paying it back early (which includes if you move to a different product or move to a different lender) during a certain period. 

ERCs can be considerable, particularly if you opt to pay back your mortgage fully soon after you've set it up - perhaps as much as 2 - 5% of the whole mortgage sum.


Estimated property value

The purchase price or the conservative market value of the property being used as security.

Equity

The monetary difference between a property's actual value and the mortgage held against the property.

Exit Fee

This is a closure administration fee payable to service providers when you fully repay your mortgage.

Extended Tie in Period

Some lenders stipulate that the borrower keeps their mortgage with that lender for a period of time after the agreed, discount or fixed rate period has ended. If the borrower moves their mortgage elsewhere during the tie in period, they may have to pay an early repayment charge.

Fee Saver

Fee Saver means no booking fee, no completion fee. We will cover the cost of one standard valuation fee. Other fees and charges may apply including, but not limited to, legal fees, you may also be liable for any charges levied by your current lender.

First Time Buyer

A person buying their first property.

Fixed Rate Mortgage

A fixed rate mortgage provides the security of fixed mortgage repayments until an agreed date, no matter what happens to interest rates.

Fixed Until

The date at which a fixed rate mortgage will expire.

Further Advance

This is when you increase your borrowing on your existing mortgage under the same terms as you agreed originally.

Home Mover

A person selling one property and purchasing another property.

Interest Calculated Daily

The interest chargeable on the outstanding mortgage balance is calculated every day rather than at the end of each week, month or year.

Interest Only

The monthly payment covers just the interest and the original capital amount borrowed remains outstanding throughout the term of the loan.

Interest Rate

This is the percentage rate at which the lender calculates the interest they charge the borrower for the mortgage.

Interest Type

Interest payable may be variable or fixed (a certain rate fixed for a given term set by the lender).

KFI (Key Facts Illustration)

A KFI requires all lenders to set out the details of all associated rates and fees for a mortgage product in the same format to enable customers to easily compare products.

Loan to Value (LTV)

The loan to value represents the percentage of the value of the property which the borrower is seeking to borrow. E.g. a £100K property with an £80K mortgage = an 80% LTV.
The maximum LTV you might be offered will depend on your individual situation, the property, the loan you choose and the amount you borrow.

Lump Sum Payment

When a customer makes a one-off payment to reduce the outstanding balance on their mortgage.

Monthly Repayment

This is an estimate of the monthly repayments at the current stated interest rate.

Mortgage Term

The length of time over which a mortgage is taken i.e. the duration between drawdown of funds from the bank you are borrowing from and the expiry date of those terms when the mortgage has to be repaid back to the lender.

New Build Property

A New Build Property is defined as a building that has been built in the last 24 months which includes property bought directly from a builder or developer a property that has yet to be occupied for the first time and/or a property that is yet to be occupied in its current form, for example following a renovation or conversion.

Outstanding Balance

The outstanding amount owed to a lender under an existing mortgage.

Overall Cost for Comparison / Annual Percentage Rate (APR)

APR stands for the Annual Percentage Rate of charge used to compare loan offers.

Overpayment

An overpayment occurs when a borrower chooses to make a larger monthly repayment on their mortgage than is stipulated under the mortgage terms.

You are normally restricted in how much you can overpay your mortgage and your lender may impose penalties on you for doing so.

Porting

The term used to describe transferring your current rate from one property to another when you sell your property and buy another. This is subject to terms and conditions.

Rate period (buy to let)

The period during which the fixed or tracker rate applies. Following the expiry of the fixed rate period, the mortgage rate will revert to the bank’s Buy to let mortgage variable rate.

Rate period (residential)

The period during which the fixed, tracker or discounted rate applies. Following the expiry of the fixed or discounted rate period, the mortgage rate will revert to the variable rate.

Remortgage

When a person transfers their mortgage from another lender. Note that in normal circumstances, the original mortgage is paid off using the new one entirely. NB Not to be confused with either a Further Advance or Switching

Repayment Mortgage

All residential mortgages are repayment mortgages in that your repayments simultaneously pay off a portion towards the principal (i.e. the whole mortgage sum you were loaned) and the interest which is accruing/has accrued on top of the principal.

At the beginning you tend to pay off more towards your interest payments but as you chip away at your principal and the interest payments come down, more of your money goes towards repaying the principal.

Service Fee

The fee charged by a lender who, with the customer's written consent, requests details from their existing mortgage lender.

Standard Variable Rate or SVR

This is a variable rate mortgage that you’ll usually be moved on to once your existing fixed rate, tracker or discount mortgage ends – unless you choose to switch to a new deal. Although the SVR can be influenced by changes in the Bank of England base rate, unlike tracker mortgages, SVRs do not track above the base rate at a set percentage and so do not have to strictly follow it.

Instead, other factors such as the lender’s cost of borrowing can influence the SVR and the lender can choose to raise or lower its SVR whenever it wants. Generally, for all standard residential mortgages, SVR mortgages cost the most to service and all mortgage providers have an SVR.

Switching

When a customer moves to a new mortgage with the same lender, e.g. their fixed rate period ends and they move to a tracker rate mortgage or a new fixed rate.

Tracker Rate Mortgage

The mortgage interest rate is set at a fixed percentage above the Bank of England (BoE) base rate. The interest rate payable will rise and fall in line with changes to the BoE base rate.

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