Helping to make mortgage jargon easier to understand

At Key Solutions we work hard to ensure that you fully understand all aspects of the mortgage process.

One area that can cause problems is the wide range of technical or industry specific jargon that is often used.

To help, we have compiled a handy Jargon Buster aimed at clarifying some of the common terms used.  If you need further clarification on any point or cannot find a particular term within the list please then get in touch and one of the team will be happy to help you further.

You can also find further help in our Frequently Asked Questions section and Blog.

APRC

The Annual Percentage Rate of Charge is a representative rate designed to help you compare mortgages and work out exactly how much you will be required to repay each month.  Lenders are legally obliged to show the APRC alongside quotes for each mortgage term.

Agreement in Principle

A confirmation document from a mortgage lender regarding the amount you will be able to borrow based on an initial assessment.  This can be used to prove to a seller that you can afford to buy their property.  This can also be known as Decision in Principle or Mortgage Approval in Principle.

Arrangement Fee

A set-up fee charged by the lender for arranging your mortgage which is usually paid on completion or added to the loan.  Most lenders will allow you to add this fee to the loan, but this will mean that you pay interest on it for the whole mortgage term.

The Bank of England Base Rate

This rate of interest, set by the Bank of England, determines how much banks and building societies pay for the loans that they take out and is the rate that tracker mortgages and standard variable rates follow.

Bridging Loan

A short-term loan that ‘bridges’ the time period between two property transactions.  This is usually used to cover shortfalls between buying one property and selling another.

buy to let Mortgage

A mortgage that is used for borrowers who wish to purchase a property with the intention of renting it out.

Capital Repayment Mortgage

On a capital repayment mortgage your monthly repayments will be made up of both interest on the loan and an amount of the capital borrowed.  The total amount you owe will therefore reduce over the term of the mortgage as you make repayments.

At the start of the mortgage term it will be mostly interest that you are paying but over time the amount of capital repayment will increase until at the end of the mortgage term you have repaid the loan and interest owed in full.

Capped Rate

If your mortgage deal has a capped rate, the interest rate charged by your lender will never exceed the upper capped limit.  This is regardless of increases to the Bank of England base rate.

Consent to Let

If your mortgage has been arranged on a residential basis, you will be required to obtain permission from your mortgage provider before letting out the property.

Conveyancing

The legal process which you must go through when you buy or sell a property.  This can be done through the help of either a solicitor or licensed conveyancer.

Disbursements

The fees that your solicitor pays on your behalf and adds to your conveyancing bill on completion of buying or selling a property.  Fees include Stamp Duty, Land Registry fees and search fees.

Discounted Rate Mortgage

A discounted rate deal is one where the interest rate that you pay on your mortgage is a set amount less than the lender’s standard variable rate.  An example of this would be, if your mortgage lender standard variable rate is 5% and the deal provides you with a 1% discount, then you will only pay a 4% interest rate on your mortgage.  Discounted rates are still variable, so your payments can go up as well as down.  Discounted rate deals last for a set period of time after which the interest rate will revert to the lenders Standard Variable Rate.

Early Repayment Charges (ERCs)

An Early Repayment Charge (ERC) is a penalty that you may have to pay if you repay (redeem) the whole or part of your mortgage before the end of a fixed rate or discounted rate period.  This includes if you switch to a different product or to a different lender.

Equity

The positive difference between the value of your property and the amount of any outstanding loans against it.

Exchange of Contracts

The stage, in England, Wales and N. Ireland, when the buyer and seller have legally agreed to the sale and purchase of a property.  Both are at that point, legally bound to complete the transfer.

Fixed Rate Mortgage

A mortgage rate where the interest rate is agreed in advance and remains the same throughout the fixed period regardless of what happens to the Bank of England Base Rate during the period.

Flexible Mortgage

A mortgage that allows the borrower more flexibility with payments.  It is allowable to make overpayments and underpayments as well as to take “payment holidays” if you’re experiencing financial problems.

Freehold

This means that you own the property and the land that it is situated on.

Guarantor

With a guarantor mortgage, a parent/guardian or family member guarantees the repayment of the mortgage.  This means that if the borrower misses their mortgage repayments the guarantor will be legally obliged to cover them.

help to buy

A Government equity loan scheme that has been designed to make homes more affordable for all buyers.  The help to buy scheme is specific to newly built properties only.

Higher Lending Charge

If you are borrowing more than 75% of the property’s value, a Higher Lending Charge is sometimes applied.  This protects the lender against you defaulting on your mortgage.

Interest Charges

Calculated as a percentage of the total amount that you borrowed on your mortgage based on your interest rate, these are the fees paid for borrowing the funds from the lender.

Interest Rates

This is the rate of interest that the lender will charge you as a percentage for lending you the funds.

Interest Only Mortgage

An interest only loan allows you to only repay the interest on your mortgage each month without repaying any of the capital loan itself.  This means that the amount you owe remains constant throughout the term of the mortgage and at the end you will still owe the full initial amount borrowed which will then have to be repaid to the lender by other means.

Leasehold

Leasehold means that someone else owns the land that the building is situated on.  Whilst you own the property, this is only for a certain period of time (anything up to 999 years.)  Many leasehold properties will be subject to ‘ground rent’ which is basically a maintenance charge for the upkeep of any communal areas or may be a nominal amount sometimes referred to as ‘peppercorn rent’.

Legal Fees

The fees charged by a solicitor, licensed conveyancer or other qualified individuals to carry out the legal work associated with buying a property.

Lifetime Mortgage

A lifetime mortgage is a popular option for equity release and is designed to run for the lifetime of the homeowner.  The loan is secured against your home with the amount borrowed being calculated using the age of the youngest homeowner and the valuation of the property.

Loan-to-Value (LTV)

The LTV describes the ratio of a loan to the value of the asset that it is being secured against.  In the case of a mortgage it is the amount being borrowed as a % of the total value of the property. If the purchaser is borrowing £70,000 to use in conjunction with their deposit of £30,000 to purchase a house valued at £100,000 the LTV would be 70%.

Mortgage Rate

Simply, the rate of interest charged by a mortgage lender.

New Build Property

A new build property is generally defined as:

  • A house that has been built in the last 24 months, including property bought directly from a builder or developer
  • A house that has yet to be occupied for the first time
  • A house that is yet to be occupied in its current form, for example following a renovation or conversion

Offer of Loan

The formal document approving the mortgage that has been requested and detailing the terms and conditions of the agreed loan.

Offset Mortgage

An offset mortgage links your mortgage with your savings and, in some cases, your current account.  This works whereby your credit balances are offset against your mortgage debt so that you only pay interest on the difference whilst also paying off the capital.

Professional Mortgage

A mortgage designed specifically for individuals who are in training or have just started a career in roles with future high earning potential.

Remortgage

The term referring to the process of changing your mortgage without moving house.  You may choose to do this for a number of reasons including to save money, to change to a different type of mortgage, or to borrow additional funds.

Searches

Your solicitor will make enquiries to ensure that the property has no restrictions or hidden legal problems.  Searches will include Land registry, Drainage and water, Environmental, Planning, Mining and Flood Risk.

Stage Payment

A stage payment is where the mortgage is released to you in parts usually as part of a self-build arrangement.  Payments are typically released in stages by the provider in order to coincide with important stages in the build.

Stamp Duty

Stamp Duty Land Tax (SDLT) is payable when you buy a property for more than £125,000 or £40,000 if it’s a buy to let or second home.  The tax is charged on land and property transactions in the UK and is charged at different rates and thresholds for varying properties and transaction values.  See our Stamp Duty Calculator to calculate how much Stamp Duty you might have to pay.

Standard Variable Rate (SVR)

This is the default mortgage interest rate that your lender will charge after your initial mortgage period ends.  This could be higher or lower than your original rate and moves in line with the Bank of England Base Rate.

Valuation

An independent assessment of the value of a property carried out by an approved surveyor and paid for by you.  This valuation, which all lenders will insist upon, is used by the bank or building society to check that your property will provide good security for your mortgage and will be included within the decision around how much they are willing to lend you.

Variable Rate Mortgage

The interest rate on your mortgage will fluctuate during the course of your mortgage according to your lender’s standard variable rate.

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Get In Touch

To get more help call the gang on 0800 138 5856 for free. Or send us an email, we guarantee to respond to all enquiries within 24 hours.