Mortgage Glossary and Jargon Buster
Puzzled by Mortgage terms? Try our financial jargon buster
APR
The Annual Percentage Rate is the total
amount
of interest that will be paid over the whole term of a loan. The rate quoted
on loans and credit cards may only be the monthly or annual rate of interest
you pay. Lenders are required by law to inform you of the APR before you
sign an agreement.
Building Survey
Also
known as a Full
Structural survey -
recommended
for older buildings built before 1960 and unusual properties such as those
with a thatched roof or timber frame, and should reveal most defects. Each
visible element of the property
is inspected
and any
necessary
repairs
and costs are identified.
Buy to Let
Buying a property with the intention of letting it out to tenants for
rent. more on Buy
to Let
Capital and Interest Mortgage
Also known as a Repayment mortgage
where the monthly payments pay both the interest on the amount borrowed
and the outstanding mortgage.
Capped Rate Mortgage
A mortgage arranged for a set period which will go up and down with the
variable rate, but where the interest rate charged will not rise above
a maximum (Capped) interest rate.
Cashback Mortgage
The borrower receives a cash lump sum on completion, or after the first
monthly payment. It can be a fixed amount or a percentage of the mortgage.
This can help with the extra expenses of buying a house, such as: surveys,
solicitor’s fees and removal costs, and is popular with first-time
buyers.
Commercial Mortgage
A mortgage on a non residential building occupied by a business.
Completion
The date that the seller receives the money from the sale of the property
and legal ownership passes to the buyer.
Conveyancing
The legal work involved in the transfer of ownership of a property or
land, usually carried out by a solicitor or licensed conveyancer.
Discount Rate Mortgage
A mortgage where the rate fluctuates with the base interest rate, but
at a lower discount level for a set period.
Early Repayment Charge
Some mortgage contracts contain a penalty charge if you repay the mortgage
early, such as during the period of a fixed or discounted rate - also known
as Early Redemption Fee
Endowment Mortgage
An interest only mortgage where the capital at the end of the mortgage
term is repaid by the proceeds of an endowment assurance policy. There
are risks involved as there is no guarantee that the endowment will
earn enough to pay off the mortgage at the end of term.
Exchange
The signed contracts from the buyer and seller are exchanged and a completion
date set. The buyer pays the deposit on the property. The exchange
makes a binding contract.
First time buyers
Borrowers who are purchasing a property for the first time, they are
usually offered special offers – discounts, cash back and fixed
rates. Mortgage lenders are most competitive with first time borrowers
as they hope to interest them in subsequent mortgages.
Fixed rate Mortgage
The mortgage rate is fixed for a set period. Generally, the shorter the
period is then the lower the rate.
Flexible Mortgage
A combined mortgage and current account that allows you to vary your
monthly payments by overpaying, underpaying or taking a payment holiday.
Any monthly savings earn the mortgage rate, which is generally a high,
tax-free rate of return. There should be no early repayment penalty.
Freehold
If you buy the freehold of a property you own it and the land it stands
on.
FSA
The
Financial Services Authority (FSA) is an independent non-governmental body
that regulates the UK financial
services industry, including: mortgage
lending, mortgage advice and general insurance advice. If
the required standards are not met, then the
FSA can take action against firms.
Full Structural survey
An extensive property survey - known as a Building
Survey – this
is recommended for older buildings built before 1960, and should reveal
most defects. Each visible element of the property is inspected and any
necessary repairs and costs are identified.
Higher Lending Fee
Formerly known as a Mortgage Indemnity Guarantee, this is the sum required
by the lender when the amount borrowed exceeds a given percentage of
the value of the property. The charge is used to buy an insurance policy
against you defaulting on the mortgage loan.
HIPS
See Home Information Packs
Homebuyer's Survey and Valuation
This survey is more detailed than a basic Valuation
and includes significant matters such as subsidence or settlement
and urgent repairs for which the client should obtain quotations
prior to exchange of contracts. This is usually recommended for conventional,
unmodified properties and generally those built after 1960's.
Home Information Packs (HIPS)
Home Information Packs, including Energy Performance Certificates, are
being introduced on a phased basis from 1st August 2007. Initially only
sellers of properties with four or more bedrooms in England and Wales
are required to order a HIP pack although three bedroom houses are included
after September 10th. The house can be placed on the market before receiving
the HIP documents, as long as the seller can prove the HIPs have been
ordered and will arrive within 28 days. HIPs are intended to improve
the house buying and selling process. The packs are paid for by the
property vendor and contain information and documents about the property,
including a rating of the home's energy efficiency. They are likely
to increase the cost of selling a house by around £300 to £600.
more on HIPs
IFA
Independent Financial Advisers are authorised and regulated
by the Financial Services Authority, which ensures they only provide
advice
most suited to your personal requirements and your risk outlook,
before helping you to choose any financial products.
Interest only mortgage
A mortgage where the monthly payments only meet the interest on the capital
amount borrowed. The capital amount remains outstanding and the borrower
has to make provision for repaying this amount at the end of the mortgage
term. Most borrowers use the proceeds of an investment, such as a long-term
savings plan, an ISA or endowment policy run alongside the mortgage
to repay the debt.
ISA Mortgage
This is taking out an interest-only mortgage and running an ISA investment
alongside in order to repay the capital sum borrowed. There are risks
involved as with any stock market investment, but there is the advantage
of tax savings in that any savings you make are free from Capital Gains
and income tax. Most lenders also require life insurance to cover the
amount borrowed.
Joint Tenancy
This is the owning of land or property by two or more people. The joint
tenants both pay the mortgage and get an equal share when the property
is sold. If one of the joint tenants dies, the ownership of the property
passes to the survivor/s, in contrast to property held by 'tenants
in common'.
Key Worker
Living Programme
A government-led initiative helping key workers - including such professions
as:
nurses,
teachers, firefighters, police officers, social workers, prison
staff, probations staff, who live in
London,
the
South East and the East of England - to buy a home, upgrade to a larger family
property
or
rent
a home at an affordable price. The scheme offers eligible key workers interest-free
loans
of
up
to £50,000. The Housing Corporation gets back paid when you sell the property,
and if you cease your job as a key worker you'll be required to pay the money
back
within two years. This
programme
is
mainly
aimed
at
first-
time
buyers.
Land Registry
The government body responsible for maintaining and updating the register
of all properties in England and Wales – records and transfers
land ownership. Since February 2005 for just a £2 fee online you
can discover : who owns a specific property, how much it cost them, the
name
of their
mortgage
provider and the length of any lease on it.
Leasehold
This gives you the right of possession of a property, but not the ownership
for an agreed period of time. Many flats in the UK are leasehold.
LTV
Loan-to-value ratio – this is the difference between the loan amount
and the house's market value. A loan of £80,000 on a £100,000
home gives a loan-to-value ratio of 80%. The bigger the difference is
between the loan and the value of the house, then the smaller the LTV.
This difference is known as the equity.
Mortgage
A loan to buy a house, where the property is the security for paying
back the loan. The lender has the authority to sell the property if
repayments are not maintained. Mortgage repayments are usually made
monthly over a long period, usually 25 years. There are many different
mortgage options : repayment, flexible, tracker, capped, discount,
self certification.
Mortgage-in-principle
Lenders can agree to a mortgage in principle even before you find the right
property. This is subject to further conditions being met, such as, credit
checks and a property valuation.
Mortgage Offer
The document issued by the mortgage lender to the borrower following
approval, setting out the conditions and terms.
Mortgage Protection
Usually taken out with a Repayment mortgage this policy provides
life assurance that reduces in line with the decreasing mortgage debt.
The policy pays out a lump sum in the event of death, which is used
to repay the mortgage. There are no savings with a mortgage protection
policy, it purely provides life insurance.
Negative Equity
This is where the amount of money owed on the property exceeds the property's
market value. So, if you sold your house you would not get enough money
to pay off your mortgage loan.
NHBC Warranty
if you are buying a new house you should receive a NHBC (The National
House Building Council) warranty. Providing the builder is registered
and the property meets standards the NHBC will issue a Buildmark Warranty.
This offers insurance protection against any structural or building
faults for 10 years.
Non-Status Mortgage
If you do not have a credit record or any proof of income or
a mortgage history then you are termed by lenders as 'no status'. It
is still possible to arrange a non status mortgage even if you have
been turned down before and have a poor credit history - CCJ's, mortgage
arrears, repossession, Discharged Bankruptcy. Generally the maximum
loan to value is around 70% and the rates are usually higher.
Overpayment
This is when you pay more than the required monthly repayment to your
mortgage lender. A flexible mortgage allows overpayment
and underpayment. As long as there is no early
repayment charge you should be able to overpay as
much as you can afford and cut down your mortgage term
and interest paid.
Pension mortgage
You can link your personal pension plan with your mortgage
loan,so that at the end of the mortgage term part of the tax-free proceeds
of the pension fund repays the outstanding mortgage loan. You receive
tax relief on your pension plan contributions, but are left with less
for your retirement.
Portable Mortgage
This is where a borrower can transfer their existing mortgage
to a new property without incurring the penalty of early redemption
fees. Most mortgages are now portable mortgages, meaning that if you
decide to move you take your mortgage on the same terms and conditions
to your new property. Mortgage portability can be advantageous, if for
example you have secured a good fixed rate, a capped, cash back or discounted
product originally and the market has since changed, leaving no comparable
deals.
Find out more about: Buy
To Let - Remortgages
- Homeowner Loans
- Starting
your own Business
Property Chain
This is when a number of property transactions
are dependant on others - when a seller needs the sale of their house
before they can complete the purchase of another property. The
chain can break if one buyer is unable to sell their home and a link
breaks. A first-time buyer has no chain which is an attractive prospect
for a seller.
Remortgage
The arranging of a new mortgage for your property without moving.
The reasons for remortgaging are usually to get a better
mortgage rate or to release equity for improvements.
Repayment Mortgage
You pay the mortgage along with the interest monthly.
This is the most popular mortgage plan and the safest.
A Mortgage protection
policy is recommended with this mortgage plan,
so if the policy holder dies the debt can be paid by the heirs. Also
known as a Capital and Interest
mortgage
Search
This is usually carried out by the solicitor as part of the
conveyancing process on your proposed property. The search checks for
any plans with the Local authorities which might affect the property,
such as: new roads, proposed building developments or public rights
of way. Most searches take around a fortnight, but they can take up
to six weeks. It is usually possible if you need to act quickly to pay
extra for a faster 'personal search'.
Second Mortgage
This additional mortgage on a mortgaged property is also known
as a secured loan. The first mortgage takes legal priority, so the second
mortgage is considered more of a risk for the lender, so the rates are
likely to be higher.
Self Certification mortgage
This mortgage allows borrowers to certify their own earnings
without having to supply documentation, such as wage slips. This option
often suits the self-employed,
seasonal wage earners, or anyone with irregular earnings such as, a
contract worker or commission-based employee, or those in salaried employment
with a supplementary source of income, an unsalaried company director,
or varying other circumstances. A specialist mortgage lender can often
be more flexible than the high street lenders with Self cert mortgages.
Shared Ownership
This government scheme enables you to buy property jointly
with a Housing Association, a housing society or a non-profit making
housing company, who will pay between 25 and 75 per cent of the cost.
This scheme was developed to help those who could not afford to buy
a home outright, and allows you to buy a share of the property and pay
a rent on the remaining share. Up to four people can become joint owners,
but all joint applicants must individually and jointly meet the eligibility
criteria. The share you purchase is funded by a mortgage. It is possible
to buy further shares and eventually own the property.
Stamp Duty
This tax imposes a percentage charge on the price of a property over
£125,000 : up to £250,000 - 1%, up to £500,000 - 3%,
£500,000 + - 4%
Tenants in Common
This is where two or more people own a property, but if one of the owners
dies their share of the property passes to their next of kin not the
other owner/s, unless there is a will stipulating otherwise. The terms
are defined by the percentage of the property that each person owns.
Tracker Mortgage
The interest rate reflects the changes made by the Bank of England.
It can be for only a few years or for the duration of the mortgage.
Title Deeds
The legal documents for a property that detail the owner, any restrictions
on the use and rights of way.
Valuation
This basic survey is carried out by the mortgage lender and assesses
whether the property is good security for the proposed mortgage loan.
The buyer usually pays for this and receives a copy. Some lenders do
not charge. This survey is suitable for a new house, but for any other
property it is recommended you commission your own survey, such as the
Homebuyer's survey &
valuation
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