| Index »GLOSSARY |
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| GLOSSARY |
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| Advance |
| Another name for a mortgage or loan.
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| Adverse Credit |
| A loan offered to some one with a poor credit record such as mortgage arrears or country court judgments (CCJs).
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| ASU |
| Accident, sickness and unemployment insurance. Covers your monthly mortgage repayments should you fall ill or be made redundant.
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| APR ( Annual Percentage Rate) |
| This takes into account up-front and ongoing costs associated with taking out a mortgage.
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| Arrangement Fee |
| This is normally charged by the lenders for arranging the mortgage.
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| A Mortgage In Principle |
| This is a conditional offer made by a mortgage lender that - provided the information you give them is correct - they will "in principle" give you the loan you have discussed with them. It's very useful to have one before you even start looking for a house to give you the edge over any competition. Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins.
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| Base Rate |
| The rate of interest set by the Bank of England. Sometimes lenders call their own standard variable rate their basic rate or basic rate.
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| Building Report |
| A detailed survey of a property. Recommended for older or more unusual properties.
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| Bank Of England Base Rate |
| 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.
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| Buyers Market |
| This is when the buyer is more in demand than the seller. The buyer is more able to dictate terms.
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| Buildings And Contents Insurance |
| This insurance covers damage to the mortgaged property and or its contents..It is compulsory for all lender and if the lenders own insurance is not taken they often charge an administration fee. Some lenders attach mandatory insurance cover to their most attractive rates. Although this is increasingly uncommon.
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| Buy-To-Let Mortgage (BTL) |
| This is a mortgage for property that will be let by the borrower to other tenants. When lenders calculate how large a loan the borrower can afford to repay on BTL they do so primarily on the basis of projected rental income, rather than salary income multiplies.
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| CCJ |
| County court judgment handed out for non-payment of a debt
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| Completion |
| The point at which a property is legally yours.
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| Credit Check/Score |
| The way some lenders assess the risk of taking you on as a borrower, based on your financial record and income.
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| Capital And Interest Mortgages |
| With this method the monthly mortgage repayments pay off the both the initial loan amount and the interest that is charged upon it. At the end of the loan term the entire debt will be repaid.
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| Capital Rest Period |
| This is the regularity with which a lender calculates the outstanding balance on mortgages and hence the size of monthly repayments. It is usually monthly or daily. With capital and interest mortgages this can be important. An annual interest calculation means the borrower will pay interest on capital repayments that have been made in the course of that year. In contrast a daily or monthly interest calculation means that the balance and consequently the interest charged will reduce with every capital repayment made.
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| Capped Rate Mortgage |
| This is a mortgage that is guaranteed not to rise a specific rate (the 'cap') within a set period. Unless this sis combined with another rate, such as a Discount or tracker. the lender's SVR will be charged if it is lower than the capped rate. If it rises above this ceiling the rate charged will remain at the capped level. There are often repayment charges applicable if the loan is repaid within the capped period.
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| Cash Back Mortgage |
| This is a mortgage in which refunds a sum of money, either as a percentage the loan or a flat figure, to the borrower upon a completion. With this type the borrower will typically be tied to the lenders SVR by early repayment charges necessitating repayment of the cash back if the loan is repaid within a set period.
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| Current Account mortgage |
| This is a fully Flexible mortgage combined with a current account. Money in the current account is automatically set against the mortgage balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.
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| Capital And Interest |
| Your monthly payments to your lender are partly to pay the interest you owe, and partly to pay back some of the outstanding mortgage debt. Also known as a repayment mortgage.
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| Capped Rate |
| An interest rate that is set for a period of months or years, and is applied only if the standard variable rate exceeds it.
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| Cash-Back |
| A lump sum of money given by the lender when you take out their mortgage. It varies depending on the individual scheme, can be quoted as a set figure or as a percentage of the overall mortgage, and can, in some cases, be used to fund the deposit.
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| CCJ County Court Judgment. |
| A decision made in the County Court, usually for the non-payment of a debt and 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.
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Completion |
| The day you become the new owner and can move in.
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Contracts |
| The legal documents under which the buyer and seller of the property agree the terms.
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Credit Search |
| This is a search your lender will carry out to determine whether you have any CCJ's, defaults or outstanding credit card bills.
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Credit Scoring |
| A process used by some, but not all, lenders to determine whether you are a good risk to offer a mortgage too.
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Critical Illness Policy |
| An insurance policy taken out by a borrower designed to pay them a lump sum of money, at least equal to the mortgage amount, should they be unfortunate enough to be diagnosed as suffering from any one of a number of certain medical conditions after the mortgage is in place. Unlike life assurance, it pays out on survival of the illness. It means the mortgage can be cleared so that there is no fear of repossession.
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Chain |
| Usually when you're buying a new home you are depending on the sale of your old home to finance the new one. If the people buying from you are also depending on others buying/selling their homes then this is a "chain". The problem is that no one can move 'till everyone's ready and one failure along the line will break the whole "chain."
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Conveyancing |
| Conveyancing is the legal work involved in buying and selling a home. It would normally be done either by a solicitor or a licenced conveyancer.
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Credit Reference Agencies |
| These are used to check your credit rating.
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Discounted Rate Mortgage |
| This is a variable mortgage that is discounted from s lender SVR by a set percentage with a set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.
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Discounted Tracker Rate Mortgage |
| This is a variable mortgages that is discounted from the Bank of England's base rate by a set percentage within the set period. There are often early repayment charges applicable if the loan is repaid within the discounted period.
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Disbursements |
| The name for the various costs a solicitor will pass on to you when carrying out your legal work.
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Deposit |
| The amount of money you put towards the purchase of the property.
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Disbursements |
| The solicitor's expenses, which you have to pay on top of the fee, for such things as land registry, searches, faxes, etc.
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Discount Rate |
| A percentage off the lender's Standard Variable Rate and set for a specific amount of time, i.e. 1% off for three years.
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Early Redemption |
| A penalty sometimes charged by a lender when you repay the mortgage earlier than expected.
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Energy Performance Certificate (EPC) |
| Included is a HIP and gives details of the energy efficiency of a home.
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Exchange Of Contracts |
| The point at which vendors and buyers solicitors swap contracts and begin to finalise the purchase.
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Early Repayment Charge |
| (previously known as "Early Redemption Penalty") A financial penalty for repaying part or all of the mortgage before an agreed date. It is often applied to mortgage schemes that are either fixed, capped or cash-back types. 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. Some lenders, and some scheme types, have no early redemption penalties at all.
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Endowment |
| A savings plan with built-in life assurance that can be used as the repayment vehicle on an "interest-only" mortgage. Some policy holders have received notification that their policy may not mature with sufficient value, and as a result either switch to a repayment mortgage, or part endowment and part repayment. Some policy holders also cash their policy in early, unaware that they can get more for it by selling the policy to a third party who then continue to pay the premiums. The life offices do not appear to be notifying their policy holders of this option. If you have a policy that you are thinking of cashing in, and would like to see what it is worth if it was auctioned off instead,
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Exchange Of Contracts |
| This is the point at which the respective solicitors swap contracts agreeing the price, fixtures and fittings, and completion date for the move. Everything is now legally binding. The buyer is now responsible for the new properties buildings insurance and, if either the buyer or seller withdraw, compensation will have to be paid.
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Extended Tie-Ins |
| This is where the early redemption penalties apply 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, i.e. "fixed rate for two years with an early redemption period of five years." Extended tie-ins are to be avoided if at all possible.
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Endowment Payments |
| With an endowment mortgage, these are payments made into an endowment policy which is a type of life assurance. (The mortgage /loan is eventually paid off with one lump sum at the end of the mortgage term).
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Excess |
| In insurance "excess" means the first bit of your claim which you have to cover yourself. So if your excess were £250 that means you would have to pay the first £250 of any damage you wish to claim for. The insurer would pay the rest. If it relates to a time period e.g. 30 days this means the insurance would start being paid after 30 days.
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Flexible Mortgage |
| As its name suggests this is a type of mortgage that offers considerably than traditional mortgages. Although specific details vary between lenders the core features of flexible mortgages are:
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Daily or monthly capital rest |
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Ability to make overpayments at any point of the loan term without an early repayment charge, in addition many flexible mortgages allow borrowers to |
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Defer payment's by taking payments holidays |
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Drawback overpayments |
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Draw down further advances |
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Underpay without penalty (often only to the amount of any previous overpayments) |
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Full Status |
| This term describes borrowers (with a good credit history) who are not self-certifying their income.
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Freehold |
| Land or property, which is owned in perpetuity as opposed to leasehold where the owner buys the right to live there for the length of the leasehold agreement.
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Fixed Rate |
| The interest rate is set for an agreed period of time.
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Flexible Mortgages |
| A relatively new breed of mortgage types that will allow flexibility of repayments. Typically, a borrower will be allowed to overpay, underpay, take payment holidays, and in some cases link their current, savings and deposit accounts to the mortgage account, so that the positive balances offset the negative balances. Some lenders will also include daily interest calculations so that any overpayments have an immediate effect on the interest charged.
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Guarantor |
| Someone who agrees to guarantee your loan and is fully liable for its repayment should you default.
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Gazumping |
| Gazumping is where the seller has accepted your offer but then takes a higher one. The Estate Agent is legally bound to pass on all offers to their client, the seller and of course the higher the offer the bigger their commission... They may even pretend there's been a higher offer at a crucial moment just to see if you'll raise your offer.
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HIP (Home Information Pack) |
| A report commissioned by the seller of a home, containing searches and energy ratings. Required if selling your home.
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Higher Lending Charge |
| (previously known as Mortgage Indemnity Guarantee.) This insurance covers the lender if your property gets repossessed and the lender does not get all its money back. It protects the lender, not you. You would still be responsible for reimbursing the insurance company if they have to pay out to the lender. It is usually you who has to pay the one-off premium as part of the lender's conditions, but most lenders allow it to be added to the overall mortgage debt, and is collected when the mortgage is redeemed in the future. Recently the threshold for triggering a MIG premium has been raised from 75% LTV to 90% LTV. This means that anyone with at least a 10% deposit will probably escape it.
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HomeBuyers Report |
| More basic than the building report. It includes a valuation and should reveal any faults a property has. A Homebuyers Report, or a homebuyer's survey, is a surveyor's assessment of the state of repair and condition of the property. It includes all parts that are readily accessible, including the roof space, if possible, but excludes under floor areas. The concise report will summaries the findings and make recommendations for further investigations or remedial work if required. Because the surveyor is in direct contact with you, you can discuss any issues or concerns directly.
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IFA |
| This stands for an Independent Financial Adviser. They have to be qualified and are supervised stringently by the Financial services Authority.
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Individual Savings Account (ISA) |
| A repayment vehicle associated with interest only mortgages.
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Interest Only Mortgages |
| With this method the initial loan amount remains the same throughout the term of the loan, while the monthly mortgages repayments only pay off the interest being charged on this amount. For this reason interest only mortgage are tied in investment in one of the number of different repayment vehicles, which ideally should the initial loan amount at the end of the loan term. These repayments vehicles include endowment policies, personal pensions, ISA etc.
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Let To Buy Mortgage |
| This is a mortgage where the borrower's current property is to let other tenants and the rental income is used to cover the mortgage repayments on a new property bought as the borrower's main residence. When lenders calculate how large a loan the borrower can afford to repay on LTB they do so primarily on the basis of projected rental income, rather than salary income multiples.
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Libor Linked Mortgages |
| This is a variable a mortgage that is either above or below the London Inter Bank Offered Rate by a set percentage with in a set period. The Libor rate is set independently every 3 months. It is often associated with lenders that offer loans to borrowers with elements of adverse credit.
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Life Policy |
| See term Assurance.
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Loan To Value |
| This is a percentage figure of the loan amount in relation to the property value. For instance a £ 100.000 property bough with a mortgages of £70,000 has an LTV of 70%. The higher the LTV the higher the interest rate charged will be, above certain LTV is a higher lending charge comes into effect.
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What Is Interest? |
| When you borrow money the lender makes money by charging interest. If you've borrowed £100 and the interest rate is 5% that means you would be paying £5 in interest - so you'd have to pay a total of £105 back.
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Interest Rate |
| This is the most significant thing about a mortgage. The Interest Rate is the amount of interest you're charged and will affect what you have to pay back. For example, if you've borrowed £100 and the interest rate is 5% that means you would be paying £5 in interest - so you'd have to pay a total of £105 back. The interest rate should always be referred to as an APR (Annual Percentage Rate).
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ISA |
| Individual Savings Account
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Loan To Value |
| This is usually a percentage, which shows the size of mortgage is the property's value. E.g. if the mortgage is £80,000 and the property's value is £100,000 the loan to value is 80%.
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Mortgages Indemnity Guarantee |
| See higher Lending charge.
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Mortgages Payments Protection Insurance |
| See Accident, sickness and unemployment's insurance (ASU)
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Mortgage Lender |
| Any financial institution that offers and/or arranges mortgages. These could be insurance companies, friendly societies, building societies, banks, and unit trust managers and, nowadays, even supermarkets.
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Mortgage Term |
| The length of the mortgage agreement. This is normally 25 years but can be any period agreed.
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Negative Equity |
| When the value of a property falls below what is owed on the mortgage. This would happen during a property slump. Say you bought a house for £100,000 during a property boom. Two years later there's a slump and it halves in value. If you sell it the new price won't cover the repayment of the, say, £98,000 you still owe on the mortgage. This happened to millions during the 80's and meant people had to stay with unwanted partners and friends' they'd bought the property with during happier times.
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Offset Mortgage |
| This is a fully flexible mortgage which allows a borrower to keep balances (such as mortgages debt savings and current account) in separate accounts but for the purposes of interest calculation, all balances are aggregated. Money in saving or current accounts is set against the mortgages balance and interest is only charged on the outstanding amount, meaning interest payments are reduced.
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Overpayments |
| This is when an unscheduled capital repayment is made or when monthly payments increased in order that the mortgages is repaid before the end of the mortgages considerable sums in interest many traditional (i.e. non-flexible) mortgages include early repayment charges if overpayments are made within a set period. In contrast flexible mortgages allow unlimited overpayments without penalty and increasingly mortgages are semi flexible allowing borrowers to overpay a certain percentages of their loan each year without incurring early repayment charges.
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Overhanging Lock In |
| This is where the mortgage lender imposes penalties to make you stay with them after an initial low interest rate (which attracted you to that particular mortgage) no longer applies and you're paying a normal rate or perhaps more than average.
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Pension |
| A repayment vehicle associated with interest only mortgages.
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Personal Equity Plan (PEP) |
| A repayment vehicle associated with interest only mortgages.
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Portability |
| A portable mortgage is one that can be transferred to another property without penalty if the borrower moves house within an early repayment charge period. The new interest rate that the lender will be prepared to offer depends on whether the loan amount increases or decreases. If the later, early repayment charges may apply.
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Procuration Fee |
| This is commission paid by lenders to intermediaries for introducing business to them. If the intermediary receives more than £250 they are obliged under the mortgage code to disclose to the borrower the exact amount they received.
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Penalties |
| These are used by mortgage lenders to make sure you stay with them or - if you leave - that they squeeze a bit more money out of you. Typical penalties are charging a percentage of what's still owed on your mortgage if you go to another lender with a better interest rate.
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Premiums |
| Insurance premiums are the regular payments you make for the policy.
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Redemption Penalty / Early Pay Off Charges |
| This is where the mortgage lender imposes penalties to make you stay with them after an initial low interest rate (which attracted you to that particular mortgage) no longer applies and you're paying a normal rate or perhaps more than average.
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Redemption Penalty |
| See early Repayment Charge.
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Repayment Mortgage |
| See Capital and interest mortgages.
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Right To Buy |
| This is when a tenant living in a council owned property purchases it at a discount, the size of which depends on the length of their tenancy.
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Self Build |
| This is s mortgage for property under construction .the loan is paid off in stages as the property is completed in order to ensure the LTV does not rise too high at any point.
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Self-certification Mortgages |
| This is a mortgages where a borrower states their income and signs a confirmation of their ability to repay a loan, without having a to provide evidence such as accounts pay slips or bank statements. Consequently, S/C rates are often higher than standard full status mortgages.
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Split Loan |
| This is a mortgage that is taken partly on a capital and interest basis and partly on an interest only basis.
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Shared Ownership |
| This is a scheme operated by a housing association where the borrower owns part of a property and pays the mortgages on this while a housing association owns the rest of the property and the borrower pays on this.
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Standard Variable Rate (SVR) |
| This is a variable rate determined entirely at each lender discretion. Unless linked to libor or the bank of England base rate, the SVR is the reverting rate at the en of any special offer period, such as a capped, discounted or fixed rate.
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Surveyor |
| surveyor checks property is in an acceptable condition.
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Term Assurance |
| This insurance repays the mortgages in the event of the insured person's death.
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Tracker Mortgage |
| This is a variable mortgage that is either above or below the bank of England's base rate by a set percentage within a set period.
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Tie You In / Tie Ins |
| Mortgage lenders will lure you in with great sounding cut-price interest rates ( see "headline interest rate"). To make up for their "loss leader" they'll try to "tie you in" eg by making you pay a financial penalty if you change to another.
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