• APR

    Annual percentage rate. The overall cost of a mortgage, including the interest and fees. It assumes you will have the mortgage for the whole term, so may not be a useful way to compare deals.

    Arrangement fee

    A set-up fee for your mortgage.

    Most mortgage lenders will allow you to add this fee to the loan, but you should avoid this as you will end up paying interest on it for the life of the loan. 

    Arrears

    If you go into arrears it means you have 'defaulted' at least once on your mortgage repayments, i.e. you have missed a month's payment.

    Contact your lender as soon as possible if you think you may go into arrears.

    Base rate

    A rate of interest set by the Bank of England, which tracker rates and lenders’ standard variable rates usually follow.

    Booking fee

    A type of mortgage set-up fee.

    Buildings insurance

    Insurance which covers you for damage to the structure of your home. A lender will require you to have buildings insurance in place when you take out a mortgage.

    Buy to let

    A buy to let* property is bought with the sole intention of letting it to tenants. Most mortgage lenders offer special 'buy-to-let*' mortgage deals for this purpose.

    As this type of lending poses a greater risk to the lender, it is usually more expensive than a residential mortgage. 

    *The Financial Conduct Authority does not regulate some forms of Buy to Lets 

    Capital

    The amount of money you borrow to buy a property.

    Capped rate

    The mortgage interest rate charged by your lender will never exceed the upper 'capped' limit, regardless of increases to the Bank of England base rate.

    Cashback mortgage

    Your lender gives you a certain amount of cash on completion, which could be useful to spend on decorating, for example. You should factor this money into the total cost of your mortgage over the initial period to decide whether it’s a good deal.

    CCJ

    County Court Judgement. These are made against you for non-payment of debt, and could make it harder for you to get a mortgage.

    Collar

    If your mortgage deal has a collar, your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, you'll miss out on the savings this lower rate will bring.

    Conveyancing

    The legal process of buying and selling property. This can be done by a solicitor or specialist licensed conveyancer. 

    Current account mortgage (Cam)

    Your mortgage, credit card and loan debts, and your current account and savings balances are combined into one account. Your credit balances offset your debts so you only pay interest on the difference.

    These are usually more expensive than conventional mortgages, so whether they are worth it for you depends on your circumstances.

    Deposit

    This is the amount you are required to put down yourself towards the cost of the property. The minimum deposit you will usually need is 5%. The cheapest deals are available if you can pay a deposit of at least 40%. 

    Discounted-rate mortgage

    A discounted-rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender's standard variable rate (SVR). For example, if the lender has an SVR of 5.5% and the discount is 1%, then you will pay 4.5%. 

    Early repayment charges (ERCs)

    Penalty fees you have to pay if you want to leave your mortgage during a specified period, usually the period of the initial deal. They can be charged at around 1-3% of the amount of the loan you have left to pay off.

    Endowment mortgage

    A form of interest-only mortgage where you also pay money into a type of investment called an endowment to pay off the mortgage at the end of the term. There is a risk that the endowment may not grow enough to pay off the mortgage, leaving you with a shortfall. 

    The value of your investments can go down as well as up, so you could get back less than you invested.

    Equity

    The amount of money you would have left after subtracting the amount outstanding on your mortgage from the value of your property.

    Equity release scheme

    There are two types: lifetime mortgages and home-reversion schemes.

    An equity release scheme allows older homeowners to release the cash tied up in their property. There is a minimum age limit to take out one of these products - usually between 55 and 65 years old, depending on the provider.

    These schemes should only be taken out after getting independent financial advice. 

    Equity release includes Lifetime Mortgages and Home Reversion Schemes. We refer to an approved specialist for lifetime mortgages and Home Reversion schemes'

    Fixed-rate mortgage

    The mortgage interest rate stays the same for the initial period of the deal, usually two to five years. This means you can be sure of exactly what you will be paying on your mortgage each month, as your rate won't go up - or down - with the Bank of England base rate as it would with a variable-rate mortgage. 

    Flexible mortgage

    A flexible mortgage deal allows you to overpay, underpay or even take a 'payment holiday' from your mortgage. This can help you pay your mortgage off early and save money on interest, but flexible mortgages are usually more expensive than conventional ones.

    Freehold

    You own the property and the land it stands on. 

    Guarantor

    A third party who agrees to meet the monthly mortgage repayment if you are unable to. This is more common with first-time buyers, with the guarantor likely to be their parent or guardian.

    Higher lending charge (HLC)

    This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage.

    Homebuy schemes

    These are government schemes designed to help existing tenants, key workers such as nurses and teachers, or other first-time buyers get onto the property ladder.

    Interest-only mortgage

    You pay just the interest on your mortgage each month. You should pay money into an investment each month too so that you can pay off the loan at the end of the term, but there is no guarantee you will end up with enough. 

    Intermediary

    A mortgage broker or adviser. They can help you arrange a mortgage, although many of the best deals are only available directly from the lender.

    Land Registry

    The official body responsible for maintaining details of property ownership.

    Leasehold

    You own the property, but not the land it stands on. Flats are usually owned on a leasehold basis. You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy. 

    Lifetime mortgages

    See Equity release schemes.

    This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration

    Loan-to-value (LTV)

    The size of your mortgage as a percentage of the property’s value. The cheapest deals are currently available if you are borrowing 60% or less.

    Monthly repayment

    The amount you pay your lender for your mortgage each month.

    Mortgage agreement in principle

    A document from a mortgage lender to show you will be able to borrow a certain amount. You can use this to prove to a seller that you can afford to buy their property.

    Mortgage deed

    A formal contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender has, should the borrower fail to make a repayment (see Arrears).

    Mortgage payment protection insurance (MPPI)

    Insurance that covers your mortgage – usually for a year – if you are unable to work due to accident, sickness or unemployment. It is also known as ASU insurance. An income protection policy could be a better way to protect your income than MPPI. 

    There are other providers of Payment Protection Insurance [Short-Term Income Protection] and other products designed to protect you against loss of income. For impartial information about insurance, please visit the website at www.moneymadeclear.org.uk.

    For Accident, Sickness and Unemployment insurance, based on a 30 year old male, a typical cost per £100 of cover would be £4.03 per month. This is based on a 30 day deferred period.

    Mortgage term

    The amount of time you are taking the mortgage out for; 25 years, for example.

    Negative equity

    When the value of your home falls to a level which is below the amount remaining on your mortgage.

    Offset mortgage

    An offset mortgage links your mortgage with your savings and, sometimes, your current account. Your credit balances are offset against your mortgage debt so you only pay interest on the difference. 

    Portability

    A portable mortgage will allow you to transfer your borrowing from one property to another if you move, without paying any extra fees.

    Rebuild cost

    The cost of rebuilding your home for insurance purposes if it is destroyed.

    Remortgage

    When you change your mortgage without moving. You can do this to save money, to change to a different type of mortgage or to release equity from your home. 

    Repayment mortgage

    You pay off the mortgage interest and part of the capital of your loan each month. This is the only type of mortgage which guarantees that you will pay off the mortgage by the end of the term. 

    Repayment vehicle

    An investment or bank account you pay money into each month, to try to build up the amount of money you need to pay off the mortgage at the end of the term.

    Shared ownership

    Shared ownership schemes are designed to allow people who would otherwise be unable to get a foot on the property ladder to do so.

    The home buyer takes out a mortgage on a share of a property from a local housing association and pays rent to it for the rest.

    Stamp duty

    Stamp duty land tax is payable when you buy a property for more than £125,000. 

    Standard variable rate (SVR)

    The default mortgage interest rate your lender will charge after your initial mortgage deal. When your 'tie-in' period is up, your interest rate will move to the lender's SVR, which could be higher or lower than your initial rate.

    Sub-prime/non-conforming

    A sub-prime, or non-conforming, mortgage is geared towards people who have had credit problems. It is now much harder to get a sub-prime mortgage than before the credit crunch.

    Tie-in period

    This is the period during which you are 'locked in' to your mortgage deal, and would have to pay an early repayment charge to move your mortgage elsewhere.

    You should avoid mortgages that tie you in after your deal period has ended.

    Tracker mortgage

    The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it. 

    Valuation

    Lenders require you to carry out a valuation to verify that the property is worth the amount you want to borrow.

    You should also get a survey done, such as a Homebuyer’s report, home condition report or building survey, to find out about the condition of the property.

    Variable-rate mortgage

    The interest rate on your mortgage can go up or down according to your lender’s standard-variable rate.

     

     

     

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