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Mortgage Glossary

The world of mortgages and finance is full of jargon and sometimes it can be difficult to know your APR from your LTV… This glossary breaks down all the common (and not so common) terms associated with the credit industry so that it’s a bit less like a foreign language…

Agreement in Principle (AIP)

An Agreement in Principle is a document which your mortgage lender will provide. You can use it as a form of proof to show your seller how much you’ll be able to borrow from that lender – although it is not considered a guarantee.

Annual Percentage Rate (APR)

APR stands for Annual Percentage Rate and is calculated by taking the total interest cost plus fees. APR is often used as a way to compare mortgages and all lenders must tell you the APR of a loan before you sign the credit agreement.

Arrangement Fee

The Arrangement Fee is the amount that a lender charges to set up your mortgage.

Arrears

If your loan or mortgage are in arrears, this means that at least one contractual payment has been missed. When your account falls into arrears, this will usually be reflected on your credit report. Continued arrears can lead to you losing your home.

Base Rate

The base rate is set by the Bank of England and is the amount of interest that other banks and lenders pay when they borrow money. The base rate will also influence the amount of interest that companies will charge for mortgages, loans and other types of credit.

Booking Fee

A booking fee is charged by companies to set up your mortgage. It can also be called an Arrangement Fee.

Broker

A mortgage broker is someone who can help you to arrange a mortgage. They act as an adviser and intermediary between individuals and lenders. There are certain mortgage and insurance products which are only available through a broker. Not sure whether to work with a mortgage broker? Our post Are mortgage brokers worth it? will help you to decide.

Buy to Let

A buy to let property is bought specifically for the purpose of letting out to tenants. There are special buy to let mortgages which are available for this type of purchase.

Capital

The capital is the mortgage amount that you borrow in order to buy a property.

Capital Repayment Mortgage

A Capital Repayment Mortgage is the most commonly available and involves paying a combination of the capital and interest each month until the entire mortgage is paid.

Cashback Mortgage

A Cashback Mortgage offers borrowers a cash lump sum as part of their mortgage.

County Court Judgment (CCJ)

A County Court Judgment is a type of court order that may be made against you if you fail to make payments on a credit agreement such as a loan or credit card. A CCJ will be recorded on your credit report and can seriously impact your ability to get a mortgage – and the rates that you’re offered.

Credit Score

All lenders have a scoring system that they will use to help them decide whether to accept your application. They will check the information on your credit report, along with other details that you provide in your application and they’ll assign you a credit score based on their specific lending criteria.

For more on credit scores, take a look at our blog post 5 Secrets to improve your credit score.

Deeds

A legal document which acts as an official record and proof of ownership of a property.

Deposit

The initial lump sum payment that a buyer makes towards the cost of their property. This will usually be around 10% of the property price but the amount can differ. Our blog post How much deposit do you need to buy a house is a useful guide when it comes to knowing how much to save.

Early Repayment Charges

When you take out a mortgage, an end date will be specified in your contract. Most mortgage agreements will include early repayment charges which mean if you choose to pay off your mortgage or switch to another lender before your initial agreement has ended, you will be charged a sum of money.

Endowment Mortgage

An interest only mortgage where the capital is meant to be paid by one or more insurance-based savings plans. This type of mortgage has the risk of resulting in shortfalls and overpayments.

Exchange of Contracts

This is the point at which a mortgage sale becomes legally binding. As a buyer, it’s advisable to make sure that you’re covered by buildings insurance from this point.

Equity

The equity is the share of the property that you actually own. That is, it’s the amount your property is worth minus the the sum you own on your mortgage.

Fixed Rate Mortgage

When you take out a fixed rate mortgage, the interest rate that you pay will be set for a specific amount of time; usually 1, 3 or 5 years. At the end of this time, your interest will usually revert back to the lender’s variable rate (which will generally be higher).

Flexible Mortgage

As the name suggests, a flexible mortgage offers borrowers much greater flexibility when it comes to repayment. You may be able to make overpayments, underpayments or even take payment breaks as part of your agreement. This can be a great option for people who have inconsistent income, such as self-employed.

Guarantor

A guarantor is someone who will guarantee to cover the mortgage if the main borrower(s) is unable to. This might happen in the case of a parent acting as guarantor when their child wants to buy a house and it can be a huge help for first time buyers who might otherwise struggle to get a mortgage.

Gross Income

Your income before any tax or other deductions are made.

Higher Lending Charge

This is an insurance premium that you may be asked to pay if your Loan to Value (LTV) is high.

Interest

The amount that is added to what you borrow (ie. the capital) and that must be paid to the lender in return for your mortgage.

Interest-Only Mortgage

This allows the borrower to pay only the interested owing on the mortgage sum. This means the capital balance doesn’t go down and will still need to be paid at the end of the term.

ISA Mortgage

This type of mortgage is funded by an Individual Savings Account (ISA). The goal is that the ISA will pay off the capital at the end of its term, while the interest is paid separately.

Key Facts Illustration

This is a document that your mortgage broker or lender will provide. It should outline all the key information about the mortgage product that they are recommending or that you have chosen.

Loan-to-Value (LTV)

This is the difference between the amount borrowed and the actual value of the property. The remainder will normally be paid up front as a deposit. For example, if you want to buy a property that is £250,000 and you’re paying a £25,000 deposit, your loan will need to be £225,000 and your LTV will be 90%.

London Inter-Bank Offered Rate (LIBOR)

This is the interest rate that is used when banks lend to each other and it’s taken into consideration when lenders work out their representative interest rates.

Mortgage

(Well we couldn’t create a mortgage glossary without this one, could we?)

A mortgage is the name given to a loan that is secured against a property – and usually used to purchase that property.

Mortgage Adviser

A qualified professional who helps people to find the right mortgage for their circumstances. Also referred to as a Mortgage Broker.

Mortgage Broker

A qualified professional who helps people to find the right mortgage for their circumstances. Also referred to as a Mortgage Adviser.

Mortgage Term

The length of your mortgage agreement and the amount of time you have to pay off the loan.

Negative Equity

When the amount you owe on your mortgage is greater than the value of your property, this is known as negative equity. It can be a problem if you want to move house as you’ll have to find the shortfall before you can sell.

Net Income

Your income once tax and deductions have been taken.

Offset Mortgage

This type of mortgage allows borrowers to use their savings to ‘offset’ their loan. It means that you only pay interest on the balance between your savings and mortgage debt. For example, if your mortgage is £200,000 and you have £50,000 in savings, you’ll only pay interest on £150,000.

Overpayments

When you make a payment that’s greater than your contractual amount, this is known as an overpayment. The benefits of overpayment are that you’ll end up paying less interest and you’ll shorten the term of your mortgage. There are often overpayment penalties built in to your agreement, so make sure you check first.

Payment Holiday

This is when your lender allows you to take a short break in your contractual payments. This can be useful for self-employed people or anyone with irregular income. You might also request this if you were financially vulnerable for a certain time.

Procurement Fee

This is the sum or commission paid by a mortgage lender to a mortgage adviser or broker for providing customer applications for their mortgage products.

Remortgage

When you remortgage, you switch your mortgage for a certain property from one product to another.

Further reading: 5 Reasons it’s the perfect time to remortgage

Repayment Mortgage

This type of mortgage is paid through simple repayments which combine both the capital and interest owed. This means that once the mortgage term is complete, no further money will be owed, assuming the borrower has kept up with payments.

Searches

Before buying a property, you’ll need to instruct your solicitor to conduct a number of searches to ensure there’s no key information about the property that you’re not aware of. You lender also needs this information in case there’s anything which could impact the value of the property.

Secured Loan

This is the term given to any loan which is secured on your property or other assets. It means that if you don’t keep up your repayments, the lender may repossess your property in order to recover their money.

Self-Certification Mortgage

This type of mortgage was generally for self-employed people who didn’t have payslips or consistent regular income. The applicant was able to declare their earnings without having to provide proof of income. Self-certification mortgages were banned in the UK in 2011 and are no longer available.

Stamp Duty

Stamp Duty Land Tax is a tax levied by the government on purchasing property. The amount you pay will depend on your circumstances, for example, whether you’re a first time buyer and the value of the property you’re buying.

Standard Variable Rate (SVR)

The standard variable rate is a mortgage lenders main lending rate. When any fixed term or promotional rates have come to an end, your mortgage will generally revert to the lender’s SVR, which tends to be higher.

Survey

This is usually done by a surveyor and is an expert inspection of the building which will help to identify any structural issues or repairs that need doing.

Tracker Mortgage

The interest rate on a tracker mortgage will generally be linked to the Bank of England base rate and so will move up and down accordingly.

Valuation Fee

Your mortgage lender will have the property valued as security against your mortgage. The valuation fee is the sum they’ll charge you for doing this.

Variable Rate Mortgage

Unlike a fixed rate mortgage, the interest rate on a variable rate mortgage can change over time, generally according to the lender’s standard variable rate.

Thinking of getting a mortgage?

There’s more to finding the perfect mortgage than knowing the lingo! Here at BB Mortgages we have years of experience in working with our clients to help them find just the right mortgage for their specific circumstances – whatever they may be!

If you’d like to chat with one of our expert advisors then book your free consultation today and let us help you too.

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Ellen King

Absolutely delighted with the service we received from Dean. The advice we received was timely and thorough; the service provided went above and beyond our expectations compared to other mortgage advisors we have used in the past and the whole application process was made straightforward and stress free. Overall, an excellent value for money service that I would highly recommend.


Ellen King

BB Mortgages
2019-09-04T15:53:10+01:00

Ellen King

Absolutely delighted with the service we received from Dean. The advice we received was timely and thorough; the service provided went above and beyond our expectations compared to other mortgage advisors we have used in the past and the whole application process was made straightforward and stress free. Overall, an excellent value for money service that I would highly recommend.

Miss Knight

We would like to take this opportunity to thank you for your efforts in making it possible for us to purchase our first property.  You have been brilliant and your services have been friendly, helpful, swift and professional.  We cannot thank you enough and it has been an absolute pleasure working with you.  What is known to be a stressful time has been very smooth and I have yourselves to thank for this.


Miss Knight

BB Mortgages
2016-03-22T17:24:36+00:00

Miss Knight

We would like to take this opportunity to thank you for your efforts in making it possible for us to purchase our first property.  You have been brilliant and your services have been friendly, helpful, swift and professional.  We cannot thank you enough and it has been an absolute pleasure working with you.  What is known to be a stressful time has been very smooth and I have yourselves to thank for this.

Mr L

Mr L hadn’t sold his house but had found the house of his dreams, we arranged a mortgage that allowed him to buy his new house without selling and a mortgage that was flexible enough for him to pay a large amount off when he sells his house.

BB Mortgages
2016-09-13T12:38:09+01:00
Mr L hadn’t sold his house but had found the house of his dreams, we arranged a mortgage that allowed him to buy his new house without selling and a mortgage that was flexible enough for him to pay a large amount off when he sells his house.

Miss G

Miss G sold her house and had found a new house, it all looked straight forward but she had a historical bankruptcy which meant lots of lenders were declining her. We found her a mainstream high street lender that would offer a mortgage even with her previous bankruptcy.

BB Mortgages
2016-09-13T12:43:22+01:00
Miss G sold her house and had found a new house, it all looked straight forward but she had a historical bankruptcy which meant lots of lenders were declining her. We found her a mainstream high street lender that would offer a mortgage even with her previous bankruptcy.

Mr W

Mr W works abroad but wanted to buy a buy to let property, most lenders will require him to own and live in in a mortgaged property in the UK, however we found a lender that would lend at sensible interest rates for a new buy to let purchase.

BB Mortgages
2016-09-13T12:48:10+01:00
Mr W works abroad but wanted to buy a buy to let property, most lenders will require him to own and live in in a mortgaged property in the UK, however we found a lender that would lend at sensible interest rates for a new buy to let purchase.

Mr C

Mr C wanted to buy a student house in Lincoln via a limited company to take advantage of the income tax benefits of this. He spoke with other brokers and high street lenders all of which said it wasn’t possible. We found a building society who specialise in this with sensible fees and interest rates.

BB Mortgages
2016-09-13T12:49:06+01:00
Mr C wanted to buy a student house in Lincoln via a limited company to take advantage of the income tax benefits of this. He spoke with other brokers and high street lenders all of which said it wasn’t possible. We found a building society who specialise in this with sensible fees and interest rates.
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