Mortgage Jargon Buster

Agreement in Principle – Also known as a ‘Decision in Principle’, these are issued by lenders to confirm they are prepared to lend, subject to their criteria being met once a full application is submitted to them. Lenders will attain basic information at this stage and this process may also entail a credit search or check.

Base Rate – This is normally referred to the Bank of England Base Rate. Most tracker mortgages will track the Bank of England base rate. Many Standard Variable Rates (SVR) may also be affected by changes in the Base Rate.

Buildings Insurance – All lenders will require you to have buildings insurance on the property they are lending against. This is to protect both yourself and the lenders interest in the property against risks and perils like fire, lightning, storm, subsidence or even an earthquake!

Buy-to-let (BTL) – A property which is specifically let out, most often for investment purpose.

Capital Repayment – With this type of mortgage you are gradually paying both capital and interest against the amount borrowed. Providing that monthly payments are maintained in full then your mortgage will be paid off by the end of your term.

Deposit – This is the sum of money the purchaser or buyer puts down to secure the mortgage.

Discounted Rate – The mortgage interest rate is discounted from the lenders standard variable rate for a certain period of time. For example 1% discount off the lenders SVR. After the set period of time the rate will switch to the lenders standard variable rate.

Early Repayment Charge (ERC) – This fee may apply if you were to repay your mortgage balance in full whilst in your initial period. An early repayment charge may also apply if you over pay more than your mortgage allows. The amount would depend on the mortgage amount outstanding and the terms of the mortgage.

Equity – The difference between the value of the property and the amount of any loan secured against it.

First Time Buyer – A person who has never owned a property before.

Fixed Rate – With a fixed rate mortgage your payment stays the same for a certain period of time. This could typically be 2, 3, 5 or even for 10 years!  Often referred to as a ‘tied in’ period. If the interest rates go up, your mortgage will be protected from the increase. But also, you won’t benefit from any fall in interest rates either. At the end of the fixed rate period, your rate will typically revert to the lenders Standard Variable Rate for the rest of the term. During the fixed rate period, there may be a pay a fee or early redemption charge (ERC) if you wish to re-mortgage or pay back extra amounts towards the mortgage.

Flexible Mortgage – A normal mortgage with additional features such as the ability to overpay, underpay or even take a payment holiday. The amount of flexibility would be pre-defined from the outset. Any underpayments or payment holidays could mean a higher monthly payment or longer mortgage term.

Freehold – The legal title that gives you complete ownership of the land your property is situated on.

Guarantor – A person who promises they will pay the borrower’s debt, should the borrower fail to do so.

Interest Only – Mortgage payments will be made to cover the interest charged on the balance. At the end of the term you will be responsible for repaying the total amount you have borrowed. Therefore you must have a repayment strategy in place for this type of mortgage.

Leasehold – With a leasehold property, you own the property for a set number of years, but not the land on which the property is situated.

Mortgage Payment Holiday – This is an agreement with the lender to temporarily stop your monthly mortgage payment. The terms and ability of mortgage payment holidays are usually set out in your mortgage offer. However, in exceptional circumstances lenders can sometimes offer this facility at their discretion.

Mortgagee – This is the company or organisation that lends you the money.

Mortgagor – This is the person taking out the mortgage.

Negative Equity -Where the value of the property has fallen and is less than the loan secured against it.

Offset Mortgage – Offset Mortgages allow you to balance any savings in a linked account against your mortgage. For example if you have a £100,000 mortgage and £20,000 in a savings, you could only pay interest on £80,000. A major benefit of an offset mortgage is that you can reduce your monthly mortgage payment or reduce your mortgage term, but still have access to your savings.

Overpayments – A common feature on may mortgages. It allows you to make a extra payment to reduce your mortgage balance and therefore reducing the amount of interest you would be charged. Always check to see if there are limits on how much you can overpay before an early repayment charge applies. Once an overpayment has been made, there is no guarantee that this can be borrowed back should you require the funds again.

Porting – This is where you are moving home and retain your existing mortgage. The existing mortgage is ‘ported’ (moved) across to your new property.

Product Fee – This fee is often charged by the lender on certain products. Lenders may often offer a variety of different fee’s across various rates and loan to values.

Remortgage – The transfer of a mortgage to a new lender.

Shared Ownership – A scheme operated by housing associations where a person owns part of the property and pays a mortgage on the part, whilst the housing association will own the rest of the property and the person pays rent on that part.

Tracker Rate – A tracker mortgage fluctuates in line with a base rate (typically set by the Bank of England). The tracking rate will be a margin above the rate it tracks. For example the Bank of England base rate plus 1.5%. So with the base rate being 0.5%, the rate paid would be 2%.  Tracker rates can be for either a set period (typically 2 or 5 years) or be a lifetime tracker. If it is only for a set period then your mortgage would switch over onto a standard variable rate at the end of the initial term.

Variable Rate – Variable Rate mortgages mean your mortgage payments can go up or down. The lender will determine the rate and can decide if they wish to track the Bank of England rate or not. You could typically be switched on to a lenders standard variable rate (SVR) once a fixed rate period ends.

Vendor – The person(s) you are buying the new property from. Or person selling the property.

Your home may be repossessed if you do not keep up repayments on your mortgage.