Mortgage Jargon Buster

  • Advance

    The mortgage loan.

  • APR

    Annual Percentage Rate. This is the rate of charge on a loan calculated to a set formula. It includes not just the rate of interest, but also associated costs. It was introduced to provide a meaningful comparison of rates charged by different lenders. You may see this expressed as “The overall cost for comparison is x.y% APR”.

  • Arrangement fee

    This is normally charged by the lenders for arranging a mortgage loan.

  • ASU

    Accident, Sickness and Unemployment. This is an insurance policy designed to provide a regular income for a specified period, should the borrower become unemployed or be unable to work due to an accident or sickness resulting in a loss of earnings.

  • Bank of England base rate

    This is the benchmark lending rate regulated by the Bank of England. If this is altered in an attempt to control the overall economy, then the lenders will normally follow its movement and alter their own Standard Variable Rate.

  • Capital and interest

    Monthly repayments to a lender are made up of interest and capital which reduces the mortgage debt over time (also known as a repayment mortgage).

  • Capped rate

    Some lenders will, for a guaranteed period, ensure that your rate does not exceed a fixed upper limit, even if interest rates rise beyond that limit.

  • Cash-back

    A type of mortgage where you will receive a cash lump sum at the commencement of your mortgage. The amount will vary depending on the scheme offered.

  • CCJ

    County Court Judgement. A decision made in the County Court, usually for the non-payment of a debt which is registered on your credit file. Once the debt is paid (“satisfied”), and a satisfaction certificate obtained, it is also noted on your credit file.

  • Completion

    The day you become the new owner and can move in to your property.

  • Contracts

    The legal documents under which the buyer and seller of the property agree the terms.

  • Conveyancing

    The process of transferring ownership of the property.

  • Credit search

    The search your lender will carry out to determine your credit payment history.

  • Credit scoring

    A process used by some, but not all, lenders to determine whether you are a good credit risk.

  • Critical illness cover

    A plan which pays a lump sum amount on diagnosis of a critical illness specified in the terms and conditions and you are eligible to claim.

  • Deposit

    The amount of money you put towards the purchase of the property.

  • Disbursements

    Costs which you will have to pay for things such as land registry, search fees etc. which are in addition to the fee payable to your solicitor.

  • Discount Rate

    For an agreed limited fixed period, the lender will apply a discount off their standard variable rate. Generally, the shorter the discount period, the larger the discount.

  • Early Repayment Charge

    A financial penalty for repaying part or all of the mortgage before an agreed date. It is often applied to fixed, discounted, tracker, capped and cash-back mortgages. Quite simply, the lender agrees to offer what it believes is an exceptional package of benefits, providing the borrower agrees to keep the mortgage with them for an agreed length of time.

  • Exchange of contracts

    The date at which both parties confirm the purchase/sale of the property through solicitors. The purchase is then legally binding. The buyer is responsible for the new property’s buildings insurance.

  • Extended tie-ins

    This is where the early repayment charge applies even after the scheme date has finished. It means, in effect, that the lender, in exchange for what it believes is an exceptional scheme, requires the borrower to keep the mortgage with them after the scheme has ended, for a set period of time.

  • Fixed rate

    The interest rate is set for an agreed period of time.

  • Flexible mortgages

    A relatively new mortgage type that will allow flexibility of repayments. Options may include the ability to overpay, underpay or take payment holidays. Where the lender calculates interest on a daily basis any overpayments have an immediate effect on the outstanding mortgage balance.

  • Gazumping

    This is where the seller accepts an offer and agrees the sale only to accept a higher offer from another party before exchange of contracts has taken place.

  • Homebuyer’s report

    A Homebuyers Report, or a homebuyers survey, is a surveyors assessment of the state of repair and condition of the property. The report will summarise the findings and make recommendations for further investigations or remedial work if required. Any issues or concerns from the report can be discussed directly with the surveyor.

  • Higher Lending Charge

    This insurance covers the lender if the property is repossessed and the subsequent sale proceeds do not repay the outstanding mortgage debt and costs in full. The Higher Lending Charge protects the lender, not the purchaser who would still be responsible for the shortfall.

  • Income reference

    The lender will usually request written confirmation of income from your employer.

  • ISA

    Individual Savings Account. A tax efficient savings plan which can be used to help repay an “interest-only” mortgage. Tax assumptions are those currently applicable and are subject to statutory change.

  • Leasehold

    A form of land tenure where a person has rights over a piece of land for a specific period. Most residential leases have long terms and are usually set initially at 99 years or 999 years.

  • Licensed Conveyancer

    An alternative to using a solicitor. They specialise in property ownership transfer.

  • Life assurance

    A policy taken out by most borrowers to help repay the outstanding mortgage debt in the event of death.

  • LTV

    Loan To Value. This refers to the size of the mortgage in relation to the value of the property. For instance a mortgage of £75,000 on a property of £100,000 value is said to be 75% LTV.

  • MPI

    Mortgage Payment Protection Insurance. A plan which is designed to provide you with a monthly benefit to help pay your mortgage if, due to illness, accident or unemployment (if selected), you are unable to work resulting in a loss of earnings.

  • Negative equity

    Where the property has a value which is lower than all the loans secured against it.

  • Offset mortgages

    A relatively new mortgage type where you may be able to link your current, savings or deposit accounts to the mortgage, so that the positive account balances are offset against the mortgage resulting in a reduced interest payment.

  • Personal pension

    This is a structured savings and investment plan designed to provide you with an income on retirement. As you can take some of the plan as cash it could be used to help repay an interest-only mortgage.

  • Remortgage

    A new mortgage with a different lender even though you are not moving home. It can be of the same size, bigger or smaller.

  • Repayment mortgage

    See Capital and Interest mortgages.

  • Sealing fee

    A fee paid to your “old” lender upon closure of your mortgage account.

  • Searches

    These are checks carried out during the Conveyancing process to determine any planning proposals or other matters which might affect the purchase or future saleability of the property.

  • Standard variable rate

    The interest rate applied to the mortgage account when no other overriding scheme such as a fixed rate is in force. It fluctuates and follows the Bank of England base rate.

  • Structural survey

    This is based on a detailed inspection of the property and reports on the general structural condition. It is typically for older or unusual properties. Any issues or concerns from the report can be discussed directly with the surveyor.

  • Term

    The period of years over which you take the mortgage.

  • Title deeds

    Documents that show proof of ownership.

  • Tracker mortgage

    The lender agrees a rate linked to the Bank of England base rate in the form of either a loading or discount for a set period. The Bank of England review the base rate every month, although the reviews do not necessarily result in a change of rate.

  • Transfer deed

    The document that transfers ownership.

  • Valuation report

    Lenders require a standard valuation to be undertaken on the property before issuing the mortgage offer. The lender will compare the valuation figure with the agreed buying price, and use whichever is lower when deciding on how much to lend.

  • Vendor

    The seller.