Here are some of the most popular phrases and terminology that you will come across when dealing with mortgages.
Agreement in principle (AIP)
A document from a mortgage lender confirming that you will be able to borrow a certain amount. 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 will have the mortgage for the whole term, so may not be a useful way to compare deals.
A set-up fee for your mortgage. Most mortgage lenders will allow you to add this fee to the loan, but this will mean you pay interest on it for the whole mortgage term.
If you go into arrears it means you have ‘defaulted’ at least once on your mortgage repayments, i.e. you have missed a month’s payment. Contact your lender as soon as possible if you think you may go into arrears.
A rate of interest set by the Bank of England which tracker mortgages and standard variable rate mortgages usually follow.
A type of mortgage set-up fee.
An adviser who can help you arrange a mortgage. Be aware that some brokers will get paid more commission for recommending certain deals than others; also, some of the best mortgage deals are only available if you apply directly.
Insurance which covers you for damage to the structure of your home. A lender will require you to have this in place when you take out a mortgage.
A buy-to-let property is bought with the sole intention of letting it to tenants. Most mortgage lenders offer special buy-to-let mortgage deals for this purpose.
The amount of money you borrow to buy a property.
If your mortgage deal has a capped rate, the interest rate charged by your lender will never exceed the upper ‘capped’ limit, regardless of increases to the Bank of England base rate.
Your lender gives you a certain amount of cash on completion. You should factor this into the total cost of your mortgage over the initial period to decide whether it’s a good deal.
County Court Judgement (CCJ)
These are made against you for non-payment of debt, and could make it harder for you to get a mortgage.
If your mortgage deal has a collar, your interest rate will not fall any lower than the specified amount. So if rates drop to 3.75% and your deal is collared at 4%, you’ll miss out on the savings this lower rate will bring.
The legal process you must go through when you buy or sell property. This can be done by a solicitor or licensed conveyancer.
Current account mortgage (CAM)
Your mortgage, loan and credit card debts and your current and savings account balances are combined into one account. Your credit balances offset your debts so you only pay interest on the difference. These are usually more expensive than conventional mortgages.
This is the amount you are required to put down yourself towards the cost of the property. The minimum deposit you will usually need is 5%, but the cheapest deals are available to people who can pay a deposit of at least 40%.
A discounted-rate deal is one where the interest rate you are charged is a set amount less than your mortgage lender’s standard variable rate (SVR). For example, if the lender has an SVR of 5.5% and the discount is 1%, then you will pay 4.5%.
Early repayment charge (ERC)
Penalty fees you have to pay if you want to leave your mortgage during a specified period, usually the period of the initial deal.
A form of interest-only mortgage where you also pay money into a type of investment called an endowment to pay off the mortgage at the end of the term.
The amount of the property that you own outright, i.e. your deposit plus the capital you’ve paid off on your mortgage.
Equity release scheme
An equity release scheme allows older homeowners to release the cash tied up in their property. There are two types: lifetime mortgages and home-reversion schemes. These schemes should only be taken out after getting independent financial advice.
Family offset mortgage
Used by family members (usually parents) who want to help first-time buyers get onto the property ladder. Your savings are balanced against your child (or family member)’s debt, so the amount they owe and pay in interest is reduced.
The mortgage interest rate stays the same for the initial period of the deal, which can be anything from one to 10 years. This means you can be sure of exactly what you will be paying on your mortgage each month, as your rate won’t go up – or down – with the Bank of England base rate.
A flexible mortgage deal allows you to overpay, underpay or even take a payment holiday from your mortgage. This can help you pay your mortgage off early and save money on interest, but flexible mortgages are usually more expensive than conventional ones.
You own the building and the land it stands on.
A third party who agrees to meet the monthly mortgage repayments if you are unable to. This is most common with first-time buyers, and the guarantor is usually their parent or guardian.
Help to Buy
The government has launched a number of different Help to Buy schemes, including equity loans, mortgage guarantees, ISAs and specific schemes for Scotland and Wales. They all aim to make home-buying easier.
Help To Buy ISA
A tax-free savings account, into which the government pays first-time buyers a cash bonus towards the purchase of a property. For every £200 saved, the government will deposit an additional £50, up to a maximum of £3,000.
Higher lending charge (HLC)
This is sometimes charged by your mortgage lender if you are borrowing more than 75% of the property’s value. It protects the lender against you defaulting on your mortgage.
You only pay the interest on your mortgage each month, without repaying any of the capital loan itself. The idea is that you build up enough money to be able to pay off the mortgage at the end of the term in other ways – for example through investing in stocks and shares, pension endowment or the sale of another property.
An adviser who can help you arrange a mortgage. Be aware that some intermediaries will get paid more commission for recommending certain deals than others; also, some of the most competitive mortgage deals are only available if you apply directly.
A mortgage taken out by two or more people. This might be used if you buy a house with a partner or friend, and can also be used by parents who want to help their children buy a property.
The official body responsible for maintaining details of property ownership.
You own the building but not the land it stands on, and only for a certain period (anything up to 999 years). You may find it hard to get a mortgage if there are fewer than 70 years left on the lease of the property you want to buy.
The size of your mortgage as a percentage of the property’s value. The cheapest deals tend to be available to people who are borrowing 60% or less.
The amount you pay your mortgage lender each month. If you’re on a repayment mortgage (the most common kind), the payment will cover a percentage of your mortgage plus interest.
A formal contract between lender and borrower, outlining the legal obligations of the borrower and the rights the lender has if the borrower fails to make a repayment.
Mortgage payment protection insurance (MPPI)
Insurance that covers your mortgage, usually for a year, if you are unable to work due to accident, sickness or unemployment. It is also know as ASU insurance.
The amount of time you are taking the mortgage out for; 25 years, for example.
When the value of your home falls to a level which is below the amount remaining on your mortgage.
An offset mortgage links your mortgage with your savings and, sometimes, your current account. Your credit balances are offset against your mortgage debt so you only pay interest on the difference, while also paying off the capital
A portable mortgage will allow you to transfer your borrowing from one property to another if you move, without paying arrangement fees.
For insurance purposes: the cost of rebuilding your home if it is destroyed.
When you change your mortgage without moving house. You can do this to save money, to change to a different type of mortgage or to release equity from your home
You pay off the mortgage interest and part of the capital of your loan each month. Unless you miss any repayments, you are guaranteed to have paid off the mortgage by the end of the term.
Required by lenders if you take out an interest-only mortgage, this is the means by which you’re intending to pay off your mortgage at the end of the term – for example, another property, or a stocks and shares portfolio.
Right to Buy scheme
Originally intended to enable tenants of council houses to buy the homes they lived in, this is now being opened up to housing association tenants too.
The fee paid to a managing agent for the ongoing maintenance of a leasehold property.
You buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share, which is owned by the local housing association.
Stamp duty land tax is payable when you buy a property for more than £125,000 (or £40,000 if it’s a buy-to-let property or second home).
Standard variable rate (SVR)
The default mortgage interest rate your lender will charge after your initial mortgage deal period ends. This could be higher or lower than your original rate.
Starter Homes Initiative
A government scheme which promises to build 200,000 new homes for first-time buyers aged under 40. Buyers will be given a minimum discount of 40%.
A sub-prime, or non-conforming, mortgage is geared towards people who have had credit problems. It is now much harder to get a sub-prime mortgage than before the credit crunch.
This is the period during which you are ‘locked in’ to your mortgage deal. You’ll have to pay an early repayment charge if you leave your mortgage during this period. Avoid mortgages that tie you in after your introductory rate has ended.
The interest rate on your mortgage tracks the Bank of England base rate at a set margin above or below it.
Lenders always carry out a valuation survey to check whether the property is worth roughly the amount you’re paying for it. You should always have your own survey done too, to check for structural problems.
The interest rate on your mortgage can go up or down according to your lender’s standard variable rate.
Manchester Mortgages is a trading name of Mortgages 4U (North West ) Limited which is authorised and regulated by the Financial Conduct Authority (FCA register number 301076). Registered in England & Wales No. 4729252. Registered office: 7 Randale Drive, Bury, BL9 8HZ.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.