Glossary of Terms
At Lance Mortgages we leave the complicated world of mortgages and all its jargon behind. Take a look at our helpful glossary of terms to help guide you through the process as smoothly as possible.
At Lance Mortgages we leave the complicated world of mortgages and all its jargon behind. Take a look at our helpful glossary of terms to help guide you through the process as smoothly as possible.
The purpose of an Annual Percentage Rate of Charge is to show you the annual cost of a mortgage. It combines interest rates, charges and fees to demonstrate how much you would pay over the full term of your mortgage (if you never make any changes to it).
An Automated Valuation Model is software used to determine the value of a property.
The base rate is the UK’s interest rate as set by the Bank Of England. This is used by the central bank to gauge how much to charge other banks and lenders when they borrow money.
A capital and interest mortgage is where the monthly payments repay both the interest accrued on the outstanding balance, and an amount towards clearing that balance. If you remain on this and do not take out any further secured debts, then at the end of the term you will own 100% of your property.
Some lenders offer a “cashback” incentive to help with costs or as a reward for choosing them. The balance is paid upon completion of the mortgage and is not a part of your mortgage borrowing.
A “charge” can be put on a property and when it does, it means a company or an individual has registered a legal interest in a property with HM Land Registry. This usually means the property cannot be remortgaged, sold or transferred until the charge is cleared. This is a way for lenders to ensure that the money they lend for a mortgage is repaid.
This is the term used to describe the point where the money has passed from the buyer to the seller and the ownership of the property has transferred.
The legal term for transferring land or property from one person to another.
Credit reference agencies are independent organisations who store information regarding a person’s credit history. They provide this information upon request to lenders so they can decide whether or not they are willing to lend money to the borrower.
Also known as a credit check, this is the process conducted by a credit reference agency when requested by a lender to review a potential borrower’s credit history and judge their credibility.
With the aim to reduce your monthly outgoings, this is where an individual merges one or more outstanding debts with their mortgage balance into one single monthly payment.
A deposit is an amount of money paid upfront towards the total purchase of something. In the case of mortgages, it is usually a percentage of the value of the property, commonly 10%.
A formal deed between two lenders to amend financial interests in equity should the property be repossessed due to defaulted payments.
Lenders have a standard variable rate (SVR) set out by the Bank of England. A discounted rate is where the lender offers an interest rate at a fixed percentage which is below the SVR.
A drive by is a type of valuation on a property which includes an inspection of the exterior only.
ERC stands for Early Repayment Charge and comes from your lender if you choose to leave your agreed rate before it’s end date. They usually start high but decrease the closer you get to the rate’s end date.
Equity represents the proportion of the property that a person owns. This is the mortgage balance minus the value of the property.
This is when both parties sign and swap the contracts. This means the buyer is legally committed to buying the property and the seller is legally committed to selling it. It is also the point where the buyer will be asked to submit their deposit.
FCA stands for Financial Conduct Authority. They are a UK independent regulator who enforce fair and ethical practice upon financial companies.
This type of mortgage has the same interest rate applied to it every month. The advantages of this are knowing how much your mortgage payments are each month and if interest rates were to rise you’ll be protected from the impact of this. The downside is that if the rates fall, you’ll continue to pay the rate you agreed to rather than moving to the new, lower rate.
The amount of income before tax or deductions.
A Higher Lending Charge is premium a borrower pays to the lender when the ‘Loan To Value’ is higher than a certain figure – typically in excess of 90% of the property value. It partially protects the lender if the borrower defaults.
A department of the HM government who are responsible for registering the ownership of most land and property in England and Wales.
The Information Commissioner’s Office are a UK independent regulator who enforce compliant behaviour upon organisations in order to protect consumers.
A mortgage illustration, also known as a KFI (Key Facts Illustration) is a document showing the details and costs associated with the mortgage in principle. This will include lender fees, broker fees and occasionally valuation fees but it won’t cover solicitors’ fees or insurance as these are separate costs.
This is money received on a regular basis through work, investments, pensions, benefits and/or child maintenance.
The premium paid by a borrower to a lender in return for borrowing the lender’s money.
You only pay the interest on this type of mortgage. This means the monthly repayments are lower, but you don’t gradually clear the capital. Instead you have to repay the capital at the end of the term in one lump sum.
Loan to value is the ratio of your mortgage balance as a percentage of the value of the property.
These are legally binding documents that the buyer signs agreeing to the conditions of the mortgage offer which include the rate, term, repayments, T&C’s and type of mortgage.
The mortgage term is the agreed length of time a person will make payments to the lender to clear their borrowings. Generally, the longer the term, the lower the monthly repayments will be but the more interest you’ll pay. The term will only remain the same if no changes are made to the mortgage agreement.
The amount of income after tax or deductions.
The date at which the formal mortgage offer is valid until.
This is the formal document held and maintain by HM Land Registry which contains proof of ownership and other details such as the address, any legal charges or third party interests.
An offset mortgage links your savings and current account to your mortgage. The aim is to reduce the amount of interest you pay by only paying interest on the difference between those accounts and your outstanding mortgage balance. An example of this would be someone with a £200,000 mortgage, savings of £10,000 and £5,000 in their current account only paying interest on £185,000. (Mortgage balance – both savings and current account = the figure you pay interest on).
Any additional payment made over the usual monthly mortgage repayment.
Just as it sounds, this is a combination of a repayment mortgage and an interest-only mortgage. Whilst a lump sum is still due at the end of the term, it will be lower than the amount due for a sole interest-only mortgage because some payments have been made towards the balance.
This is an agreement between the borrower and lender to temporarily stop or reduce the monthly mortgage payment in the instance the borrower cannot pay their mortgage. Repayments will be re-evaluated at the end of the payment holiday and could increase as a result. Borrowers should be aware that taking a payment holiday could affect their credit rating and affect their ability to obtain finance in the future.
This is debt offered to borrowers with a good credit history and therefore considered low risk to lenders. They will generally be offered low interest rates.
This is the commission paid by the lender to an intermediary in return for providing them business.
These are formal records held with the land registry to prove ownership.
AKA a “cooling-off period”, this is the formal period of time (usually 7 or 14 days) given by a lender allowing a borrower to consider their binding mortgage offer.
A repayment mortgage is the type of mortgage where the monthly repayments go towards both the capital and the interest of the loan. The proportion of capital repaid increases every month and as long as all repayments due to the lender are made in full and on time, the mortgage will be repaid at the end of the term.
A repayment vehicle is a plan you must make to repay the outstanding balance at the end of an interest-only mortgage term. This is usually an investment/savings plan or the intention to sell the property and downsize at the end of the mortgage term.
These are inquiries and checks carried out by the solicitor to gain information about the area of the property you plan to buy in. The searches confirm if any developments are planned or if there are any historical problems in the area.
When a homeowner needs additional funds they can take an additional loan and secured it against their property with an existing mortgage. This is called a second charge mortgage.
The opposite to unsecured debt, this is debt that is secured against your property. This type of debt is riskier for the borrower because they can lose their home if they default on payments however in many cases the interest rates and repayments are lower.
Tax charged on the purchase of a property.
In regard to the mortgage application, a solicitor is a professional and qualified individual used to handle the legal aspects such as performing searches and transferring funds when purchasing a property.
If a mortgage deal comes to an end and a new deal hasn’t been arranged, it will usually be automatically transferred onto the ‘Standard Variable Rate’. This rate is normally significantly higher than an agreed fixed rate and the rate varies month to month meaning your payments will too.
This is debt offered to borrowers with a bad credit history and therefore considered high risk to lenders. They will generally be offered high interest rates.
This is a home inspection instigated by a buyer and carried out by a qualified surveyor to identify any potential issues with a property. The surveyor will assess areas such as the roof, ceilings, walls, fireplaces, staircases, woodwork, chimney, guttering, windows and more.
A tracker mortgage is where the interest rate varies by ‘tracking’ the Bank of England’s base rate. This means your mortgage repayments could be different every month.
This is the formal legal process of adding a new party to your properties title deed or removing a party from the title deed.
If a person needs to relieve financial pressure, they may have the option to underpay their mortgage payments if overpayments have been made in the past. The total amount previously overpaid acts as an allowance to make lower monthly payments until the allowance equals zero.
The opposite to secured debt, this is debt that is not secured against your property. This type of debt is less risky for the borrower because they can’t lose their home if they default on payments however in many cases the interest rates and repayments are higher.
This is the process of finding out the value of a property. The estimate is provided by an estate agent or independent valuer and is based on elements such as location, size and condition.