Stands for ‘Annual Percentage Rate’. This figure is the interest rate applied to the mortgage loan for a whole year, rather than just a monthly fee.
This is the fee payable to set up your mortgage loan, and can include a variety of different charges. Some mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the duration of the mortgage. This is an important part of choosing a mortgage as they can range from zero to thousands of pounds.
This is the term used for a debt that is overdue, usually after missing a required payment. If you regularly fall into arrears you are at risk of damaging your credit score (see below) or even losing your home.
This is the basic rate of interest set by the Bank of England which is used to ‘base’ some mortgage deals on. Mortgages such as trackers are set at a certain percentage above the base rate. Lenders’ standard variable rates – SRVs (see below) are also determined by the base rate.
A mortgage ‘set up’ fee that is sometimes included in the arrangement fees.
Insurance required by lenders that covers you for damage to the structure of your home.
This term describes a property that is specifically bought for the purpose of letting it to tenants. You will need a buy-to-let mortgage to purchase a property for this purpose. These mortgages tend to be more expensive than a residential mortgage and can incur additional stamp duty costs (see below).
This is the mortgage loan amount you need to borrow to buy a property.
If your mortgage deal includes a capped rate, this means that the interest rate charged will never exceed this level, regardless of changes to the base rate.
This is the legal process of buying or selling a property. This can be carried out by either a solicitor or conveyancer.
This is a score that every person has and is based on their credit report and any additional information supplied through applications for credit cards, loans and mortgages for example. Your credit score is used to help assess your suitability (risk) for borrowing.
This is the amount you have agreed to put towards the initial cost of the property you are buying. Currently, the minimum you will usually need is 5%, better deals are available with a deposit of around 40%.
Stands for ‘Decision in principle’. Issued by a mortgage lender, this document confirms that you can borrow a certain amount. This can help you by proving to a seller that you can afford to buy their property.
Early Repayment Charge:
Some lenders offer mortgage deals that include a charge if you want to repay some, or all of your mortgage off before the end of the full mortgage term. This can also apply if you want to transfer to another mortgage deal before the end of your current mortgage term.
This is the difference between the value of a property and the money you owe on it. If a property is valued at £150,000 and you have a mortgage of £100,000, you would have £50,00 of ‘equity’ in your property.
Equity release scheme:
These schemes allow older homeowners (generally 55+ years) to release the cash (equity) tied up in their property. There are two types: lifetime mortgages and home-reversion.
This is a mortgage deal that offers a fixed interest rate over a specific period of time, most commonly between two and five years. They can benefit borrowers as they offer the security of fixed monthly repayments.
This term relates to a person (most frequently a parent of a child) who guarantees to meet the mortgage repayment if the original borrower is unable or unwilling to repay the loan.
Higher Lending Charge:
Although less common these day, these fees are sometimes charged by lenders if you are borrowing a high percentage of the properties value, normally around 75% – 90%. (See loan to value below).
This type of mortgage is designed so that the borrower only pays the interest on the mortgage amount borrowed. This means that your monthly repayments will be lower than that of a repayment mortgage, but that your mortgage balance will not reduce and you will still need to repay this at the end of the term.
Key facts illustration:
This document sets out all of the key details of the mortgage being offered to a borrower showing exactly what costs & penalties are involved. When a lender or mortgage adviser recommends a mortgage to you, they must provide a key facts illustration.
See equity release schemes above.
Loan to value (LTV):
This figure is the percentage of the property price that you borrow as a mortgage. For example, if you borrow £75,000 on a property valued at £100,000, this is an LTV of 75%.
This is the amount you pay your mortgage lender each month. If you have a repayment mortgage, the payment will combine a percentage of your mortgage capital plus the interest. If you have an interest-only mortgage, the payment will be just interest.
This is basically the length of time that you agree to pay off the mortgage loan, this could range from 5 to 40 years depending on age and circumstances.
This is a situation when the amount you owe on your mortgage is higher than the value of your property. This most commonly occurs after a sudden drop, or ‘crash’, in the value of property. It particularly becomes a problem if you want to move house whilst you are in a negative equity situation.
This type of mortgage allows borrowers to ‘offset’ their savings, and sometimes their current account, against their mortgage. For example, with a credit balance of £15,000 and a £75,00 offset mortgage, you only pay interest on the £60,000 difference.
This is where borrowers make additional mortgage payments over and above their regular monthly payment. This can result in paying less interest overall on your mortgage and shortening the time it takes to pay off your mortgage loan in full. Lenders will often allow you to make overpayments of up to 10% every year on your mortgage without a penalty.
A type of mortgage that allows you to move from one property to another and move your mortgage with you, without paying additional arrangement fees.
This is the process of arranging a new mortgage deal to begin when your current mortgaged deal comes to the end of its term.
This type of mortgage is where your monthly payments include both interest as well as a portion of the mortgage loan (capital). Whilst your monthly payments are normally higher than the equivalent interest-only mortgage, by the end of the mortgage term you will no longer owe the lender anything. (Provided you have kept up your repayments).
You buy a share of a property and pay rent on the remaining share, which is owned by a housing association. You can increase your share over time until you own the property outright. Can be used to help with a deposit. (See our Help to Buy guide here)
Stamp duty is a tax that is payable when you buy a residential property. It varys depending on property price and also if its your second home or rental property purchase.
These mortgage deals are typically linked to the Bank of England base rate (see above), and will increase or decrease as they ‘track’ at a certain percentage above the base rate of interest.
Mortgage lenders will always carry out a valuation survey to check whether the property you want to buy is worth the amount you are paying for it. You should consider having your own survey carried out to make sure there are no hidden problems that do not become apparent until after you own the home.