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Jargon and lingo – talking about mortgages

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From agreement in principle and loan-to-value to freehold and leasehold, we’ve compiled a list of terms you’re likely to come across when buying a property and what they actually mean.

Buying a property can be a complicated process, and even more confusing when you’re confronted with various terms you’ve not come across before. To help you make sense of it all, we’ve listed some key definitions you’ll need to know. This list will grow as we add more common terms that are used in the ‘mortgage world’, just click on the arrow to open up the term description.

 

Agreement in Principle

• A document from a mortgage lender with an estimate of how much money you may be able to borrow. You can use this to prove to a seller that you can afford to buy their property.

Annual Percentage Rate (APR)

• The overall cost of a mortgage, including the interest and fees. It assumes you have the mortgage for the whole term.

Arrangement Fee

• A set-up fee for your mortgage.

Base Rate

• The interest rate the Bank of England charges other banks and lenders when they borrow money.

Building Insurance

• Covers you for damage to the structure of your home – you’ll need to have a policy in place when you take out a mortgage.

Capital

• The amount of money you borrow to buy a property.

Conveyancing

• The legal process you go through when you buy or sell a property is done by a licensed conveyancer or solicitor.

Deposit

• The amount you need to put down in cash towards the cost of a property.

Discounted Mortgage Rate

• Like a variable rate mortgage, your monthly repayments can go up or down. However, you will get a discount on the lender’s SVR for a set period of time, after which you will usually be switched to the full SVR. You may have to pay a penalty for both overpayments and early repayment and the lender may choose not to reduce (or to delay reducing) its variable rate – even if the base rate goes down.
• Discounted rate mortgages have the advantage of offering a gentler start to your mortgage repayments at a time when money may be tight. However, you must be confident that you will be able to afford your repayments when the discount period ends and the rate increases.

Equity

• The amount of the property that you own outright – your deposit as well as the capital you have paid off on your mortgage.

Fixed-rate Mortgage

• The interest rate on the mortgage stays the same for the initial period of the deal. Your rate won’t change with the Bank of England base rate during this time. At the end of the fixed term, the lender will usually switch to the standard variable rate (SVR).
• You may have to pay a penalty to leave your lender, especially during the fixed-rate period. You may also be liable to pay an early repayment charge if you overpay during the fixed-rate period. A fixed-rate mortgage makes budgeting much easier because your payments will stay the same during the fixed-rate period – even if interest rates go up. It also means you will not benefit if rates do down.

Flexible Mortgage

• Allows you to underpay, overpay or take a payment holiday from your mortgage – they are usually more expensive than conventional mortgages.
• Any unpaid interest will be added to the outstanding mortgage, while any overpayment will reduce it. Some have the facility to draw down additional funds to a pre-agreed limit.

Freehold

• You own the building and the land it stands on.

Gazumping

• When an offer has been accepted on a property but a different buyer makes a higher offer, which the seller accepts.

Guarantor

• A third party agrees to meet the monthly mortgage repayments if you can’t.

Help-to-Buy

• The government has introduced various Help to Buy schemes to make buying a home easier, including equity loans, mortgage guarantees, ISAs, and specific schemes for Scotland and Wales.

Interest-only Mortgage

• You only pay the interest on your mortgage each month without repaying the capital.

Joint Mortgage

• A joint mortgage is taken out by two or more people.

Land Registry

• The official body is responsible for maintaining details of property ownership.

Leasehold

• You own the building but not the land it stands on and only for a set period.

Loan-to-Value

• The size of your mortgage is a percentage of the property value.

Porting

• Allows you to transfer your borrowing from one property to another if you move, without paying arrangement fees.

Repayment Mortgage

• You pay off interest and part of your capital each month.

Stamp Duty

• You’ll need to pay stamp duty land tax when you buy a property over a certain price. For more information, you can visit Gov.uk.

Standard Variable Rate (SVR)

• The default interest rate your lender will charge after your initial mortgage period ends. Your monthly payment fluctuates in line with the standard variable rate (SVR) of interest, which is set by the lender. You will not be penalised if you decide to change lenders and you may also be able to repay additional amounts without incurring a penalty. Many lenders will not offer their SVR to new borrowers

Tracker Mortgage

• Your monthly payment fluctuates in line with a rate that is lower, or more lively higher than a chosen Base Rate (usually the Bank of England base rate). The rate charged on the mortgage ‘tracks’ that rate, usually for a set period of two or three years.
• A penalty may be applicable during the tracker period. You may also be liable to pay an early repayment charge if you overpay on your mortgage during the tracker period. A tracker mortgage may suit you if you can afford to pay more when interest rates go up – and, of course, you will benefit when they go down. It is not a good choice if your budget doesn’t stretch to higher monthly payments.

Valuation Survey

• Lenders will carry out a survey to check whether the property is worth the amount that is being paid for it. If you would like a free survey on your property visit Edward Mellor Survey.

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Contact the experts at Edward Mellor Financial Services

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Our team of financial experts can help you with your financial queries from finding you a remortgage rate or helping you with financial protection to finding an investment deal. We give independent no-obligation advice on personal pensions and more – get in touch today or email [email protected] – we’re here to help.

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Related Links

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Source: Openworks