Mortgage Jargon Buster
Mortgage
A loan to buy a property where you put up the property as security against you paying
back the loan.
Term
The period of years over which you take the mortgage and when you have to repay
it.
LTV
Loan to value. This is the size of the mortgage as a percentage of the value of
the property or the price you are paying for the property.
APR
Annual Percentage Rate. This compares the cost of capital and takes into account
most of the up-front and ongoing costs involved in a mortgage. It allows the consumer
to compare the true costs of loans from different lenders. It is a legal requirement
to quote APR figures for both mortgage and personal loan quotations.
SVR
Standard variable rate. The interest rates the lender charges goes up and down,
with your interest payments changing accordingly.
Capped rate
An interest rate charged for a set period of months or years which can go
up and down with the variable rate, but there is a maximum (capped) interest which
it cannot go above.
Flexible mortgage
A type of mortgage where you can make extra payments and even underpayments
without paying a charge or penalty.
Discounted rate
A guaranteed reduction in the standard variable mortgage rate. This often
lasts for an agreed period such as 2 or 3 years. It is often followed by a further
tie-in period during which you cannot change your mortgage provider without a financial
penalty.
Fixed rate
The interest charged on the mortgage is for a set amount for an agreed period of
months or years. Common fixed rate periods are 2 and 5 five years but can be longer.
Variable rate
The interest rate the lender charges goes up and down as the Bank of England rate
varies, and your interest payments change accordingly.
Tie-in period
As a condition of a special mortgage deal, you may have to agree to stay with the
lender for a period of months or years after the deal has ended. If you move your
mortgage elsewhere during this period, you may have to pay an early redemption charge.
Cash back
A payment you receive when you take out a mortgage. It may be a fixed amount, or
a percentage of the amount of the mortgage.
Arrangement fee
A fee you pay to the lender in return for a mortgage deal. This deal could
be fixed, discounted or cash back. It is normally paid on completion but it may
sometimes be added to the loan.
Capital and Interest/Repayment Mortgage
Your monthly payments are partly to pay the interest on the amount you borrowed
and partly to repay the outstanding mortgage. A capital and interest mortgage is
otherwise known as a repayment mortgage.
Interest-only
Your monthly payments are simply made up of interest. You do not pay off any of
the mortgage during the term of the mortgage. You pay of the mortgage finally using
the proceeds of a separate investment plan for example, an endowment, personal pension
or PEP and so on.
Re-mortgage
This is changing your mortgage without moving house.
Valuation
A simple inspection carried out for the benefit of the mortgage lender to verify
that the property forms good security for a loan. This is a limited form of inspection.
Purchasers may decide to request a full structural survey before proceeding.
Homebuyer's report
When a professional surveyor checks the structural state of a property. This
is more detailed than a valuation but less detailed than the structural survey.
The report is optional and you pay the bill; but this report should pick up possible
problems and may give you the chance to negotiate a lower price.
Structural survey
This is the most wide-ranging check of the outside and inside of a property.
A professional surveyor carries this out and it should pick up all but the most hidden
faults.
Leasehold
This is when you own the property for a set number of years, after which it goes
back to the freeholder. Sometimes the lease is for a very long period, such as 999
years. Often, 99 years is the leasehold period. Most flats are on leasehold, and
although lenders will lend on leasehold properties, they will demand that there
is a number of years left on the lease before making a loan.
Freehold
This is where you own the property and the land it is on.
Ground rent
A fee that a leaseholder has to pay the freeholder every year.
Credit Scoring
A lender's way of assessing whether you are a good risk to lend a mortgage
to, using the answers you give on a loan application form. This means it is important
that all questions on the form are answered.
Credit Search
An enquiry about your credit status. It will show details of your credit
history and information about credit agreements you may have with other organisations.
Two of the largest UK credit reference agencies are: Experian, Consumer Help Service,
PO Box 8000, Nottingham, NG1 5GX. Equifax, Credit File Advice Centre, PO Box 1140,
Bradford, BD1 5US.
CCJ
County Court Judgment. A decision reached in the County Court, which can be for
not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put
on your records to say this.
Early repayment charge
A fee charged by the lender if you pay off all or part of your mortgage before
an agreed date or you move the loan to another lender. These charges usually apply
on fixed, discounted, or cash back mortgages.
Equity
The amount of value in a property that isn't covered by a mortgage -simply take
the amount of the mortgage from the valuation to work out the equity.
Equity release
You take a new, larger mortgage, or increase a mortgage you already have
and use some or all of the extra money you have raised for home improvements, holidays
and so on.
Exchange of contracts
Where the buyer and seller of a property sign and swap identical contracts that
show the price and what fixtures and fitting are being sold, as well as the finalised
date. When contracts are exchanged the deal becomes legally binding and if either
party pull out before completion, they have to pay compensation.
Income multipliers or multiples
The size of mortgage that lenders will offer will often be worked out by multiplying
your income each year by a set figure. If you are the only person taking out the
mortgage, the usual maximum income multiple is three times your yearly income. If
you are taking out a mortgage with someone else, the multipliers might be three
times the main income plus two times the second income. Or it could be two and a
half times the two combined incomes. Lenders may consider including all or part
of any regular bonuses or commission you receive.
Income protection insurance
This covers accident, sickness and unemployment. It provides a monthly payment
if you cannot work for an extended period due to an accident, sickness or unemployment.
Negative equity
Where the money you owe on the mortgage is greater than the value of the
property. It happens when there are large property price falls after a boom period.
Non-status
The lender does not need employment or income references from you. This type
of loan is often offered to self-employed people.
Self-certified
You confirm how much you earn, and the lender does not need any references.
Stamp Duty
A tax you pay on the purchase of properties, which cost over £125,000 (tax
year 2007-2008). The
exact rate is dependent on the price.
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